A politically exposed person (PEP) is an individual who holds a “prominent public function” and is therefore considered to present a higher risk for potential involvement in bribery and corruption. Financial institutions and other regulated firms are required by law to conduct enhanced checks on PEPs.
The regime is designed to combat the risk of financial crime and corruption. The rules cover not only the individuals themselves but also their family members and known close associates.
Critics of the PEP regime have argued that it is disproportionate and in many cases excessive. Following a major controversy around the “de-banking” of UK politicians, the rules for domestic PEPs were reformed by the Financial Services and Markets Act 2023.
Why do PEP rules exist?
The PEP regime has historically been based on standards set by the Financial Action Task Force (FATF), an independent inter-governmental body that develops policies to “protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.”
The rationale is that individuals in positions of significant public power could be vulnerable to corruption and may have opportunities to abuse their position for private gain.
The enhanced checks are designed to mitigate this risk, making it more difficult for the proceeds of corruption to be laundered through the financial system.
Who is considered a politically exposed person?
The PEP definition covers a wide range of senior public figures. In the UK, this includes:
- Government ministers
- MPs
- Senior members of the judiciary (eg supreme court judges)
- High-ranking officers in the armed forces
- Members of the governing bodies of central banks
- Ambassadors and other senior diplomats
- Board members of state-owned enterprises
PEP status continues for at least 12 months after leaving office, and sometimes longer depending on risk.
Financial Conduct Authority (FCA) guidance states that “firms should only treat those in the UK who hold truly prominent positions as PEPs and not to apply the definition to local government, more junior members of the senior civil service or anyone other than the most senior military officials.”
The regulations extend beyond the individual PEP to their immediate family members and known close associates. This is to prevent a PEP from using a family member or associate to hide illicit funds.
The 2017 regulations define a family member of a PEP as “a spouse or civil partner of the PEP; children of the PEP and the spouses or civil partners of the PEP’s children; parents of the PEP”.
A “known close associate” of a PEP is defined as an “individual known to have joint beneficial ownership of a legal entity or a legal arrangement or any other close business relations with a PEP; [and] an individual who has sole beneficial ownership of a legal entity or a legal arrangement which is known to have been set up for the benefit of a PEP”.
What are the PEP rules?
The UK has implemented FATF recommendations through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Under the regulations, so-called “gatekeepers” to the financial system, such as banks, law and accountancy firms, are required to “apply enhanced customer due diligence measures and enhanced ongoing monitoring”.
Gatekeepers must also have “in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer” is a PEP or a family member or a known close associate of a PEP.
If an individual to whom this description applies is identified, the firm or institution needs to assess “the level of risk associated with that customer, and the extent of the enhanced customer due diligence measures to be applied in relation to that customer.”
How are PEPs treated?
Once the risk has been assessed, firms are expected to take proportionate action around due diligence. Under the 2017 regulations, this is defined as obtaining additional information on the customer, the source of funds and the reasons for the transactions. They should also obtain “the approval of senior management for establishing or continuing the business relationship” and conduct “enhanced monitoring of the business relationship” in question.
If a firm suspects that a money laundering offence is taking place, it must report it to the National Crime Agency (NCA).
Firms that do not follow reasonable measures to make these checks are subject to criminal and regulatory sanctions. In 2015, the FCA fined Barclays £72 million for failing to undertake enhanced due diligence on politically exposed persons. The FCA found that Barclays went to “unacceptable lengths to accommodate the clients.”
The 2023 ‘de-banking’ controversy
In 2023, a major political controversy arose over the “de-banking” of politicians and public figures.
The most senior political figure affected by the controversy was Nigel Farage. He alleged that Coutts, a bank which specialises in high net-worth clients, closed his account for political reasons and was linked to his status as a PEP.
Liz Truss, the former prime minister, responded: “The saga shows how a powerful technocracy presides over an increasingly opaque system, while elected politicians – in particular those politicians whose views do not find favour at London dinner parties – are treated with suspicion.”
Speaking in the House of Commons, the security minister, Tom Tugendhat, argued that “PEP is there to prevent the corrupt use of banking facilities by politicians in corrupt regimes.”
He added: “It is not here to silence individuals who may hold views with which we may or may not agree.
“Such a closure on political grounds, if that is indeed what has happened – after all, we have only the allegation of it at this point – should, therefore, be completely unacceptable.”
Farage’s allegations led to the resignation of Alison Rose, the chief executive of NatWest Group, which owns Coutts. The FCA also issued a warning to the financial sector to do more to ensure PEPs are treated fairly.
After Farage’s ‘debanking’, more PEPs raised concerns about having access to a bank, and Farage set up a website for people who had been denied bank accounts.
Farage said: “Most people who have this happen to them feel helpless. There’s no-one to speak for them. And I think what’s emerging is a major national scandal. You can’t live without a bank account in the 21st Century.”
The campaign described itself as being for individuals and small/medium businesses “who have faced unjust treatment from banks and financial services companies, particularly when their accounts have been abruptly closed and essential services withdrawn”.
In response to this backlash, the government introduced significant reforms via the Financial Services and Markets Act 2023. These new rules came into force in 2024. Farage and NatWest reached a confidential settlement in March 2025, with the bank apologising.
The Financial Services and Markets Act 2023
The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 further amended the 2017 regulations to require enhanced due diligence on domestic politically exposed persons to be less than in relation to foreign PEPs. These regulations were required by the Financial Services and Markets Act 2023.
These rules came into force on 10 January 2024.
A domestic PEP is defined as “a politically exposed person entrusted with prominent public functions by the United Kingdom”. Firms are required to apply a “proportionate and risk-based” approach to domestic PEPs.
A centralised list of PEPs?
A longstanding point of contention around PEPs remains the absence of an official, centralised list of all domestic PEPs in the UK.
In March 2019, the House of Commons Treasury select committee criticised the current system for not being centralised or defined enough in its approach.
The committee stated: “The politically exposed persons regime is an important part of the system for preventing money laundering. We have heard that defining PEPs remains difficult for institutions, both large and small. While commercial solutions are available, they may be beyond the resources of very small companies.
“We recommend that the government creates a centralised database of PEPs for the use of those registered by AML supervisors.”
In July 2024 and 2025, the FCA published reports on the treatment of PEPs, where they argued that some firms were still not operating within their guidance and lacked effective arrangements in place to review PEPs.
