Enhanced Due Diligence (EDD) means taking additional steps and conducting monitoring beyond standard Customer Due Diligence (CDD). Firms use EDD when they identify a high-risk client, which requires more documentation and a closer look at the client and their transactions. Hence, EDD is mandated when there is a high risk of Money Laundering, Terrorist Financing, or Proliferation Financing (MLTPF).
EDD is required by Regulation 35 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 for Politically Exposed Persons (PEPs), their family members, and known close associates. The application of EDD facilitates the management of higher risks associated with people in prominent public roles.
KEY TAKEAWAYS
- Enhanced Due Diligence (EDD) is mandatory for Politically Exposed Persons (PEPs), their family members, and known close associates under the 2017 Money Laundering Regulations.
- PEPs include heads of state, ministers, MPs, senior judges, ambassadors, and high-ranking military officers, but not middle-ranking or junior officials.
- Firms must establish source of wealth and source of funds, and obtain senior management or MLRO approval before starting or continuing any PEP relationship.
- Enhanced ongoing monitoring is required throughout the relationship and must continue for at least 12 months after a PEP leaves their public role.
- Businesses cannot refuse relationships solely because someone is a PEP. They must assess and manage risks proportionately, declining only when unmanageable.
- Domestic PEPs may be classified as low risk if no heightened risk factors exist, but the classification and reasoning must be clearly documented.
Who Qualifies as a Politically Exposed Person (PEP) Under AML Regulations?
A PEP is someone who holds a prominent public role, but this does not include middle-ranking or junior officials. Firms need systems and procedures to verify whether a customer or their beneficial owner (BO) is a PEP. People with prominent public functions include those in important government and institutional roles, such as:
- Heads of state, heads of government, ministers, and deputy or assistant ministers.
- Members of parliament or similar legislative bodies.
- Members of the governing bodies of political parties.
- Members of the supreme courts, constitutional courts, or any judicial body whose decisions are generally not subject to further appeal.
- Ambassadors, chargés d’affaires, and high-ranking officers in the armed forces.
- Directors, deputy directors, and members of the board or equivalent functions of an international organisation. Middle-ranking and junior officials of international organisations are not considered PEPs.
PEPs from countries identified as having low corruption levels, strong state institutions, and credible MLTPF defences are typically considered to pose less MLTPF risk than those from higher-risk countries.
Domestic Politically Exposed Persons
Domestic PEP are high risk clients or individuals who hold important public functions on a domestic level. An individual identified solely as a PEP based on their public function in the UK must still be classified and treated as a PEP.
However, if the business is unaware of any factors that would place the individual in a higher-risk category (such as known involvement in publicised scandals or undeclared business interests), that individual may be categorised as a low-risk PEP.
Foreign Politically Exposed Persons
Foreign PEPs are individuals who are entrusted with prominent public functions by a foreign government. Foreign PEPs are considered high risk due to their potential ability to engage in activities that leads to money laundering through their access to public funds, ability to influence government policies and so on.
Family Members and Close Associates of PEPs
EDD must also be applied to certain people connected to a PEP. Businesses should use only credible information they already have, or that is publicly available, to identify these connections.
Why Enhanced Due Diligence on Politically Exposed Persons Is Mandatory
Enhanced Due Diligence is required for PEPs, as they are individuals entrusted with public functions who often possess power over public funds and contracts, thereby introducing an amplified risk profile. The regulations mandate the application of EDD measures and enhanced ongoing monitoring specifically for PEPs, their family members, and their known close associates to efficiently control and mitigate the heightened MLTPF risks inherent in such relationships.
Furthermore, refusing to enter a business relationship solely because a client is a PEP is contrary to the spirit of the governing regulations and Financial Action Task Force (FATF) standards. Instead, businesses are required to reduce and manage the identified MLTPF risks, terminating the relationship only if the risk cannot be efficiently addressed.
Key Components of Enhanced Due Diligence on Politically Exposed Persons
Standard Due Diligence vs Enhanced Due Diligence for PEPs
How Global AML Regulations Treat Enhanced Due Diligence on PEPs
The UK’s Anti-Money Laundering (AML) regime, which includes specific rules for PEPs, is based on the law and regulations laid out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the 2017 Regulations). The 2017 Regulations were designed to implement the EU Directive, in line with the UK’s legal framework, with international standards.
A core principle embedded in the resulting legislation (Recital 33 of the EU Directive) states that businesses should not refuse to establish a business relationship solely because a person is a PEP, as this would be contrary to the spirit of the Directive and global standards. Instead, the requirement is to address and reduce the identified risks, retaining the option to decline only when they cannot be effectively managed.
Common Challenges When Performing Enhanced Due Diligence on PEPs
Firms encounter numerous issues when carrying out EDD for PEPs:
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Proportionality of Risk
Firms need to assess MLTPF risk for each case, deciding if a PEP is truly higher risk beyond their public role. For example, if a domestic PEP is considered low risk, the reasons must be clearly documented.
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Defining Associates
When attempting to identify family members and known close associates, firms must only rely on publicly available information or credible information already in their possession.
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Overcoming Reputational Bias
Firms cannot refuse business just because someone is a PEP, so they must handle reputational risks and make sure all enhanced checks are done and recorded properly.
Managing Enhanced Due Diligence on PEPs During Client Onboarding
Managing EDD during onboarding is critical, as the risk assessment informs the subsequent level of CDD required.
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Initial Screening
Determine whether the potential client or any of their beneficial owners are identified as a PEP, family member, or known close associate.
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Risk Assessment
According to Regulation 35 (3) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 it is mandatory to assess the level of risk associated with the PEP, considering factors like the country where the public function arose.
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Source Information
Take adequate measures to establish the source of wealth and the source of funds for the relationship.
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Senior Management Approval
Regulation 35 (5) (a) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 has Mandated the approval from senior management or MLRO be obtained before the business relationship is established or continued.
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Documentation
The whole process and all steps taken must be written down and available to show the supervisory authority that the right level of diligence was used for the risks found.
Best Practices for Upholding Compliance with PEP Due Diligence Requirements
To stay compliant and manage PEP risk well, firms should:
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Adopt a Risk-Sensitive Approach
Treat PEPs according to the actual MLTPF risk, using less scrutiny for low-risk PEPs and stricter checks for high-risk PEPs.
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Secure Senior Oversight
Always get and record senior management or MLRO approval for all PEP relationships, as required by law.
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Establish Clear Documentation
Keep full documentation of how you checked the source of wealth and funds and explain why you decided on the risk level and accepted the client.
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Monitor Post-Service Status
Keep applying EDD and monitoring for at least 12 months after a PEP leaves their public role.
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Invest in Training
Make sure employees are regularly trained to know who counts as a PEP, how to use risk-sensitive EDD, and how to use internal reporting systems well.
Additional Resources
- No Photo ID? Here’s What You Can Use in the UK: No Photo ID? What You Can Use in the UK (2026 Guide)
- Enhanced Due Diligence Simplified Like Never Before: Enhanced Due Diligence (EDD) Simplified: FigsFlow Helps Accountants | FigsFlow
- Here’s What AML Verification Means: UK AML Verification Guide 2026: MLR Amendments & Sanction Updates
- These 3 Forms of ID Are Acceptable Almost Everywhere in the UK: 3 Forms of ID in the UK: 2026 Acceptable Documents List
- Complete AML & KYC Compliance Requirements in a Go with FigsFlow: AML & KYC in Client Onboarding | FigsFlow
- Perform Enhanced Due Diligence on Politically Exposed Persons (PEPs): How to Perform Enhanced Due Diligence on PEPs | FigsFlow
Conclusion
Enhanced Due Diligence for Politically Exposed Persons is not simply a compliance checklist, but a mandatory, continuous risk mitigation strategy mandated by the inherent Money Laundering, Terrorist Financing, and Proliferation Financing (MLTPF) risks associated with prominent public office. The pillar of effective PEP oversight rests on securing senior management or MLRO approval for the relationship, meticulously establishing the source of wealth and source of funds, and maintaining enhanced ongoing monitoring long after the individual ceases their public function.
Firms must consciously adopt a risk-sensitive approach, ensure proportionality while recognise that the fundamental requirement is to handle and reduce the identified risks, rather than refusing the client simply because they are a PEP. Ultimately, meticulous EDD serves as the crucial gatekeeper, demonstrating compliance and protecting the business from major legal exposure, including civil penalties and criminal sanctions under the Proceeds of Crime Act 2002 (POCA) which inevitably result from failing to meet these baseline AML obligations.
Frequently Asked Questions (FAQs)
Enhanced Due Diligence for PEPs involves additional verification steps beyond standard checks, including establishing the source of wealth and funds, obtaining senior management approval, and conducting heightened ongoing monitoring. It’s required because PEPs have access to public funds and influence, creating elevated money laundering and corruption risks that demand closer scrutiny throughout the business relationship.
A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public position, such as a government official, senior politician, judge, or military officer. The designation extends to their immediate family members and known close associates due to the potential financial crime risks associated with their access to public resources and decision-making authority.
Examples of PEPs include heads of state, senators, congressmen, cabinet members, federal judges, ambassadors, high-ranking military officials, and senior executives of state-owned enterprises. Their spouses, children, parents, and individuals with close business relationships to them are also considered PEPs for compliance purposes.
Enhanced Due Diligence (EDD) is an elevated level of scrutiny applied to high-risk customers and transactions to prevent money laundering, terrorist financing, and other financial crimes. It requires gathering additional information, conducting deeper background checks, obtaining senior management approval, and implementing more frequent monitoring compared to standard due diligence procedures.
EDD means taking extra steps to verify and monitor high-risk customers who pose greater potential for money laundering or financial crime. It involves collecting more detailed information about their finances, background, and transactions, and watching their activity more closely to ensure nothing suspicious is occurring.
