My short AML survey is still live (until 31 March 2017) so please do have a go if you haven’t yet: https://www.surveymonkey.co.uk/r/VM62T6K
A few days ago I mentioned that I have responded to a consultation on draft new money laundering regulations here in the UK. One of the innovations proposed by the new regs is described thus in the consultation document: “The Financial Conduct Authority [supervisor for the financial sector only] will publish specific guidance on the treatment of domestic and foreign PEPs, their family members and their known close associates. The FCA will begin a public consultation on this guidance shortly.”
And when you turn to the draft regs, the whole of section 47 is devoted to this spiffy new guidance (I’ve shortened as necessary for readability): “The FCA must give guidance… to relevant persons… in relation to the enhanced due diligence measures required… in respect of politically exposed persons (PEPs), their family members and known close associates. The guidance… must include—
- … what functions are, and are not, to be taken to be “prominent public functions” for the purposes of determining whether an individual is a PEP;
- who should be treated as coming within the definitions of (i) a family member of a PEP; or (ii) a known close associate of a PEP;
- what constitutes “appropriate risk-management systems and procedures”;
- what account is to be taken of the jurisdiction in which the prominent public function arises;
- how the level of risk associated with a particular individual is to be assessed…, and what approach is to be taken in relation to a PEP, or a family member or known close associate of a PEP, if the PEP, family member or close associate is assessed as presenting a low level of risk;
- who should be treated as coming within the definition of “senior management” for the purposes of [approving the PEP relationship];
- what constitutes “adequate measures” [to establish source of wealth and source of funds];
- what sort of monitoring and scrutiny is required for the purposes of [keeping an eye on PEP relationships].”
I have to say that I don’t envy the FCA-er who is given this task – we’ve wrestled with it for years, haven’t we? I suspect they will cling grimly to the word “shortly”, and hope that we take a generously long-term view of the consultation process.
I hate money laundering 
Why should it be up to FCA? It could be better to leave it to the financial/ reporting entity, insist they have a written policy and make it “at their own risk”?
Hello Alex
Well, it is guidance only – not legislation – and I think it was felt that this is now such an important topic that some steer is needed on what the regulator is thinking. If the PEP guidance is approved by HMT (I assume it will be, eventually) then it will provide a safe harbour for firms whose PEP policies/procedures match it, which I think many UK financial institutions wanted.
Best wishes from Susan
After this post I had an email from someone in the FCA team tasked with producing this PEP guidance. And there is draft guidance now out for consultation, as he explains:
“We published draft guidance on PEPs the day after HMT published their draft regulations. You can see the full consultation paper here: https://www.fca.org.uk/publications/consultation-papers/gc17-2-treatment-politically-exposed-persons-peps-money-laundering . There is an online response form and we would very much welcome your comments. The draft we published was based on what the Bank of England and Financial Services Act 2016 asked us to produce but as you note in your blog the Regulations set down some slightly different categories, we are working with HMT during the consultation period to reshape the guidance so it meets this new obligation.”
I’ve responded to their consultation – it’s only eight pages long, with three questions, so quite manageable – and encourage you to do so as well. As he says, it’s not as detailed as promised in the draft Regs, but it’s a start.
Susan, It is fascinating to watch the birth pangs of the application of rules and interpretations (as you know well from your many visits to our Islands – due South)!!) that we have had in one form or another for many years. I will resist wandering down the road of “these should have been implemented years ago but EU Directives and AML constrained business development or is that my cynicism surfacing!!)
What worries me this time is the short time-frame: the plan is to get the draft Regs and draft guidance and draft PEP guidance (all of which is changing on the hoof to meet the changes to MLD4 and the possible Brexit impact) finalised by 26 June 2017. Three months away! The consultations are open until the end of April, which gives them two months to absorb and debate the reactions and make the edits. (And if my comments that I have submitted are representative, those edits should be big.)
Best wishes from Susan
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