Thematic Review of managing the risk posed by Politically Exposed Persons

The Commission has today issued its report on the thematic review of the effectiveness of firms’ monitoring of, and compliance with, requirements for managing the risks posed by Politically Exposed Persons (“PEPs”).  We undertook onsite inspections to 30 firms across the sectors with the largest exposure to PEPs. In all of the 170 PEP files which were reviewed, the relationships had an appropriate risk rating, but some firms were less proficient in documenting their consideration of the risks presented by the PEP.  Whilst it is mandatory to treat relationships with foreign PEPs as high risk, firms should ensure that that their risk methodology differentiates between foreign PEPs and domestic PEPs as the type and extent of risk present will be different, and therefore ECDD may not be appropriate for a domestic PEP.

A copy of the thematic review is available via the legislation and guidance page or via this link

The results showed that the controls employed by firms to mitigate PEP risk were effective, with only three of the 30 firms requiring risk mitigation programmes to remediate identified issues. We noted many examples of good practice, and it was encouraging to note the strong performance by fiduciaries specifically in regard to the risk assessment of PEPs. This is likely due to the nature and complexity of fiduciary service offerings which allow for a deeper understanding of the risks present in a relationship.  Nevertheless, six areas for improvement were identified where firms could improve their policies, procedures and controls.

We will be holding an industry event in the Autumn of 2023 to discuss the findings of both this thematic review and the thematic review of business risk assessments. Invitations will be sent out in due course. In the meantime, all firms are encouraged to consider the report’s contents, particularly when updating and revising their policies, procedures and controls on PEPs.