Earlier this month, the Financial Conduct Authority in the UK (FCA) launched a consultation on its guidance relating to how obliged entities should meet their obligations when conducting transactions or business relationships with Politically Exposed Persons (PEPs). Although this guidance is not applicable to Maltese subject persons – and it is hence important to note that the local authorities’ views may not necessarily concur with those being expressed by the FCA – this draft guidance still provides interesting insights on the factors that may be taken into consideration when determining the risk posed by PEPs and, consequently, the due diligence measures that should be adopted. The draft guidance is particularly helpful in the advent of the Fourth Money Laundering Directive, under which domestic PEPs shall fall within the scope of the regime; crucially, this Directive encourages more than ever before the adoption of a risk-based approach.
The FCA believes that the obligation for obliged entities to have appropriate risk management systems and procedures to identify when their customer (or the beneficial owner of a customer) is a PEP and to manage the enhanced risks arising from having a relationship with that customer, should be complied with by taking a “proportionate, risk-based and differentiated approach”. By categorically denying that all PEPs pose the same risk, the FCA explains that PEPs, PEPs’ family and PEPs’ close associates that pose a lower risk should be subject to less scrutiny than those who present a higher risk.
A list of indicators is provided by the draft guidance to help obliged entities identify those situations in which PEPs, PEPs’ family and PEPs’ close associates pose a higher or lower risk, including personal, professional and geographical factors. In lower risk situations, the draft guidance allows obliged entities to adopt certain less intrusive measures, including, for example, establishing source of wealth through publicly-available information without having to make further inquiries of the individual and/or delegating oversight and approval of the relationship to less senior members of management. To the contrary, high-risk situations call for more exhaustive steps in on-boarding the client and monitoring the relationship.
Whilst keeping in mind that this guidance is still in draft and therefore subject to change, clearer directions from regulatory authorities are always welcomed by subject persons, and it is therefore hoped that the local authorities shall follow suit. The full draft guidance paper issued by the FCA can be accessed here.