FCA is an independent government agency in the UK in charge of the treasury. So who is the FCA? The Financial Conduct Authority (FCA) regulates many financial firms and markets in the UK. The FCA has many purposes and guidelines for protecting financial institutions from financial crime. There are also FCA-regulated firms, specifically regulating financial institutions such as the FCA bank. The Financial Conduct Authority (FCA) expects firms to take appropriate measures to protect against financial crime, meeting their financial crime obligations. The FCA states that firms should apply a risk-sensitive approach to identify PEPs and implement enhanced due diligence measures. FCA clarifies its PEP's manual on how companies should use PEP definitions in MLRs in the UK context. FCA's Finalized Guidance for PEPs can answer many of your questions about PEPs.
Why Are PEPs or Relatives And Close Associates (RCAs) Pose a Risk?
Political Exposed Persons (PEPs) and Relatives And Close Associates (RCAs) should be subject to further scrutiny by incumbent organizations. There are many reasons for this: according to international standards published by the Financial Action Task Force (FATF), PEPs may have risks such as misuse of public office for private gain, and financial systems may be misused for this. Therefore, ever since a person becomes a PEP, firms have to be subject to further scrutiny. Furthermore, we should not only consider PEPs as a risk, as a PEP's Relatives And Close Associates can also take advantage of the misuse of public funds by the PEP or be used to facilitate these transactions. As a result, Relatives And Close Associates need to be subjected to more scrutiny.
What Are The Obligations of Companies Under The Regulations?
According to the regulations, liable firms must determine whether a client or a client's beneficial owner is a PEP or Relatives And Close Associates and must have appropriate risk management systems and procedures to manage the risks that arise. In these cases, and in accordance with the FATF guidelines, companies need to understand why a PEP, Relatives, And Close Associates, is subject to such Regulation as part of due diligence and use it as part of the risk assessment. In addition, obliged entities have some obligations on PEPs before they can do business, for example:
An assessment should be made of the extent of the risk when dealing with a PEP, Relatives, And Close Associates. FCA expects this assessment to be an automatic assessment that creates a high risk of money laundering.
According to FCA objectives, firms to use reasonably available information to identify PEPs, Relatives, And Close Associates, such as websites of parliaments and governments, public information such as reliable news outlets, and the work of reputable pressure groups focusing on corruption risks such as Transparency International or Global Witness.
Firms may choose to use commercial databases containing lists of PEPs, family members, and known close affiliates, depending on their nature and size, but this is not mandatory. However, a firm that chooses to use such lists will need to understand how such databases are filled and ensure that those marked by the system fall into the definition of a PEP, family member, or close partner specified in the Regulation and this manual.
A PEP database contains information about PEPs that identifies them, such as a nickname, date of birth, legal profile, and background. On the other hand, FATF classifies these PEPs according to their location and risk by the information contained in the database. Therefore, companies must perform PEP scans based on confidential PEP data. On the other hand, PEP screening is essential because companies need to determine the potential risk level if it trades with a PEP.
Suppose a firm determines that a customer meets the definition of a PEP (or family member or known close partner of a PEP). In that case, the firm should assess the level of risk associated with that client and decide, as a result of this assessment, to what extent advanced due diligence measures should be performed. Should give. Besides, the decision to take advanced due diligence measures should be clearly documented.
Who Is a Politically Exposed Person (PEP) in AML-CTF?
- Heads of state, heads of government, ministers, and vice ministers or deputies
- Members of parliament or similar legislative bodies, members of governing bodies of political parties
- Members of high courts, constitutional courts, or any judicial body
- Members of the boards of supervisory courts or central banks
- Ambassadors, charge d'affaires, and high-ranking officers in the armed forces
- Members of the administrative, management, or supervisory bodies of the state- members of the board of directors, vice-directors, and members or members of an international organization
Who Should be Treated as a Family Member and Known to be Close Associates?
Family members of a PEP are defined as follows:
- spouse or same-sex partner
- children and their spouses or fellows
- parents, also FCA, consider this definition to include siblings.
A PEP A defines 'known close partner' as:
- an arrangement or other close business relationship that is politically exposed to a legal entity or a person known to have the common interest of a legal entity
- regulation is known to be established to benefit a legal entity or a legal entity with a single usufruct right.
Are All PEPs The Same Risk?
Not all political-exposed people have the same risk; PEPs have different risks and differ depending on the situation. Therefore, firms should have different assessments, taking into account the risks posed by PEP. For example, identifying the leading public functions of PEP, determining the nature of the proposed business relationship, identifying potential misuse of the product for corruption purposes, and identifying other relevant factors that the firm considers in the risk assessment.
In this FCA manual, the terms 'low risk' and 'high risk' are used to acknowledge that firms should apply Enhanced Due Diligence on a risk-sensitive basis. An overall risk assessment should consider all the risk factors that a client may present and have a holistic view of what measures should be taken to comply. To recognize the risks PEP has, all the customer characteristics must be taken into account.