Your new client sits across from you. Former MP. Consultancy income. Property portfolio. Straightforward engagement letter, right?
Then you remember: they held ministerial office until two years ago.
That’s when the questions start. Do you need enhanced due diligence? What exactly does that involve? How much documentation is reasonable to request without losing the client?
Under the Money Laundering Regulations 2017, UK accountants and tax advisers must apply enhanced customer due diligence when dealing with politically exposed persons. Get it wrong, and you’re facing potential penalties from HMRC, regulatory action, and the uncomfortable position of having inadvertently facilitated financial crime.
This guide walks you through exactly how to perform enhanced due diligence on PEPs without over-complicating your compliance process or damaging client relationships.
KEY TAKEAWAYS
- Enhanced due diligence on PEPs requires senior approval, source of wealth verification, and ongoing monitoring beyond standard client checks
- UK domestic PEPs start as lower risk than foreign PEPs under MLR 2017, but you still need proportionate enhanced measures
- Source of wealth means total accumulated assets, while source of funds refers to specific money in the current transaction
- Family members and close associates of PEPs require the same enhanced approach, even if they don’t hold public office themselves
- Risk assessment drives everything: document why you’ve classified a PEP as lower or higher risk based on their specific circumstances
- Common mistakes include over-classifying junior officials, treating all PEPs identically, and failing to update status when they leave office
What is Enhanced Due Diligence and Why PEPs Require It
Enhanced due diligence is an intensified level of customer verification and monitoring applied to higher-risk clients, requiring firms to collect additional information about the customer’s wealth origins, fund sources, and business activities beyond standard identity checks, with ongoing scrutiny throughout the relationship to detect potential money laundering or financial crime.
PEPs attract this attention because of their position, not their character. Someone controlling public procurement decisions, awarding licenses, or managing state funds sits in a position vulnerable to corruption. They might be completely honest. But the potential for abuse exists, and that’s what the regulations address.
The Financial Action Task Force, which sets global anti-money laundering standards, makes this clear: these requirements are preventive, not accusatory. You’re not suggesting every PEP is corrupt. You’re acknowledging that prominent public positions create opportunities for financial crime that standard due diligence might miss.
For UK practices, this matters because you’re the first line of defence. When corrupt officials move proceeds through the financial system, they often use professional intermediaries like accountants, lawyers, and tax advisers. Your enhanced due diligence helps detect and prevent this abuse before it embeds itself in legitimate business structures.
Who Qualifies As a Politically Exposed Person Under MLR 2017
The regulations define PEPs as individuals entrusted with prominent public functions. That covers heads of state, government ministers, MPs, senior judges, ambassadors, high-ranking military officers, and members of state-owned enterprise boards.
The word prominent matters most. MLR 2017 explicitly excludes middle-ranking and junior officials. In practice, this means you shouldn’t treat every civil servant or local councillor as a PEP. The function needs genuine authority over significant public resources or decisions.
For UK domestic PEPs, this translates to:
-
National and devolved Parliament members
Westminster MPs, Scottish Parliament MSPs, Welsh Senedd members, Northern Ireland Assembly MLAs
-
Executive government
Cabinet ministers, junior ministers, devolved government ministers at equivalent levels
-
Top judiciary
UK Supreme Court justices only
-
Senior diplomatic posts
Ambassadors, High Commissioners representing the UK abroad
-
Highest military command
Three-star ranks and above (Vice Admiral, Lieutenant General, Air Marshal)
-
Civil service leadership
Permanent Secretaries and their deputies heading government departments
-
Political party leadership
National governing body members with authority over candidate selection or major fund allocation in parties holding parliamentary seats
Foreign PEPs follow similar logic, but you’re assessing prominence in their home jurisdiction. A deputy minister in a small country might control more resources than a junior minister in a larger state. Context matters.
Family members and close associates create another layer. Immediate family includes spouses, civil partners, children and their partners, parents, and siblings. Family members can be exploited to move illicit funds or conduct transactions that obscure the PEP’s involvement.
When a PEP leaves office, they remain subject to enhanced due diligence for at least 12 months. You can extend this period if your risk assessment justifies it, but the regulations prohibit treating someone as a PEP indefinitely without documented risk-based reasoning. Family members and close associates stop being classified as such immediately when the PEP leaves office, unless other risk factors apply.
The Risk-Based Approach: Not All PEPs Are Equal
Here’s where many practices go wrong: treating every PEP as high risk by default.
MLR 2017 explicitly requires that UK domestic PEPs start as lower risk compared to foreign PEPs. That doesn’t mean no enhanced due diligence. It means proportionate enhanced due diligence scaled to actual risk factors rather than blanket intensive measures.
A backbench MP from a safe seat with transparent expenses, published register of interests, and income from a family business poses fundamentally different risks than a former minister from a jurisdiction with weak anti-corruption enforcement who’s now consulting for extractive industries in high-risk countries.
Your risk assessment should consider the specific public function.
- Does this PEP control procurement budgets, award licenses, or manage public funds
- Or do they hold representative positions without executive authority?
A minister overseeing multi-billion-pound infrastructure contracts carries a different risk than an opposition MP.
Geographic factors matter enormously. The UK has strong institutions, a free press, an independent judiciary, asset disclosure requirements, and credible anti-money laundering defences. Compare that to countries with widespread corruption, weak rule of law, or political systems concentrating power without accountability. Where the PEP holds or held their function shapes risk assessment.
The product or service you’re providing also affects risk. Basic tax return preparation for employment income presents minimal money laundering opportunity. Complex offshore structures, large property transactions, or cash-intensive businesses increase vulnerability to proceeds of corruption entering the financial system.
Document everything!
Your risk assessment needs clear reasoning: why you've classified this PEP as lower or higher risk, which factors influenced the decision, and what enhanced measures you're applying as a result. When HMRC reviews your compliance, they'll look for evidence of thoughtful risk-based decision-making, not box-ticking.
Five Essential Steps to Conduct EDD on PEPs
Step 1: Determine PEP Status
Before you can apply enhanced due diligence, you need to identify whether your client qualifies as a PEP, family member, or close associate.
Start with your standard customer due diligence information. Occupation is the most obvious indicator. If your client declares current or former employment as an MP, minister, or ambassador, classification is straightforward.
For beneficial owners of corporate clients, you need to identify whether a PEP holds ownership or control. This gets complex with layered structures, but Companies House registers of people with significant control provide a starting point for UK entities.
Public domain searches supplement direct information.
-
Government websites list MPs, ministers, and senior officials.
-
The Electoral Commission maintains party registers.
-
News archives reveal previous positions held.
-
For foreign PEPs, embassy websites, international organisation listings, and credible news sources help confirm status.
Commercial databases exist, but aren’t required under MLR 2017.
If you use them, understand their limitations. They draw from public information, may use different PEP definitions than UK regulations, quickly become outdated as political positions change, and can generate false positives requiring manual review. Treat database results as one information source among several, not a definitive classification.
Step 2: Obtain Senior Management Approval
MLR 2017 requires senior management approval before establishing or continuing a business relationship with a PEP, family member, or close associate.
Defining the term “Senior Management”
Senior management means someone with sufficient knowledge of money laundering, terrorist financing, and proliferation financing risks and sufficient authority to make decisions affecting your firm’s risk exposure. In a sole practitioner firm, that’s you. In larger practices, it might be a compliance partner, practice manager, or designated Money Laundering Reporting Officer.
Document who in your firm meets this definition and train relevant staff on seeking approval. For lower-risk PEPs, approval can sit at a relatively junior level, provided that the person has appropriate knowledge and authority. Higher risk situations demand more senior sign-off.
The MLRO doesn’t need involvement in every individual decision, provided they maintain oversight of how your PEP controls operate overall, monitor compliance with policies and procedures, and ensure the approach aligns with regulatory requirements.
Step 3: Establish Source of Wealth
What is Source of Wealth?
Source of wealth means the origin of a PEP’s entire body of assets. This gives you the big picture of whether their overall financial position makes sense given their background.
For lower-risk UK PEPs, this might involve straightforward verification. An MP with a published salary, declared property investments purchased before entering office, and transparent spousal income from a professional career presents minimal complexity. You can often rely on publicly available information like asset declaration registers, property records, and published financial disclosures.
Ask the client to explain their source of wealth. Employment history, business ownership, inheritance, property sales, and long-term investments are typical legitimate sources. Cross-reference their explanation against public records where available.
Higher risk situations demand more detailed investigation. If a former minister from a jurisdiction with weak transparency has wealth far exceeding official salaries, you need substantive evidence of how that wealth was legitimately accumulated. Vague references to “consultancy income” or “business investments” without supporting documentation should raise concerns.
You’re not expected to verify every asset a PEP owns or trace their entire net worth. Focus on sources that generated the major proportion of wealth. If employment income, family business, and inheritance explain 90% of assets, a detailed investigation of the remaining 10% is disproportionate unless red flags suggest those funds are problematic.
Step 4: Establish Source of Funds
What is the Source of Funds?
The source of funds is narrower: the origin of the specific money involved in your current business relationship.
If you’re advising on a property purchase, what’s the source of the deposit and mortgage funds? If managing tax affairs for business income, what’s the source of that income? If establishing offshore structures, where did the assets being placed in those structures originate?
For lower-risk relationships, verification can be straightforward. Funds transferred from a UK bank account, salary payments from a transparent employer, or proceeds from a documented property sale usually need minimal additional verification unless transaction patterns seem unusual.
Higher risk situations require more detailed evidence. Bank statements showing fund origins, sale contracts for assets being liquidated, loan agreements for borrowed funds, or business financial statements demonstrating trading income all help verify the source of funds.
Source of Funds vs Source of Wealth
The key difference from the source of wealth: source of funds is transaction-specific, while the source of wealth is about the overall financial position. You need both to properly understand whether the business relationship makes sense.
Step 5: Conduct Enhanced Ongoing Monitoring
Enhanced due diligence doesn’t stop at onboarding. You need ongoing monitoring throughout the client relationship, with frequency and intensity scaled to assessed risk.
For lower-risk PEPs, monitoring might involve annual reviews when updating customer due diligence information, checking for adverse media when the client requests new services, and basic transaction pattern awareness for anything unexpected, given your knowledge of the client.
Higher risk PEPs need more intensive monitoring:
- regular reviews every six to twelve months, regardless of trigger events,
- systematic media and sanctions screening to identify adverse information,
- detailed scrutiny of transactions and activities that seem unusual compared to the expected relationship pattern, and
- immediate investigation of anything inconsistent with your understanding of their source of wealth and funds
Set up trigger events that prompt immediate review: significant changes in the PEP’s public role, adverse media coverage, sanctions listings, unusual transaction patterns, and changes in beneficial ownership structures.
Document your monitoring activity.
When did you last review the relationship? What checks did you perform? What was the outcome? Any concerns identified, and how were they resolved? This audit trail demonstrates active ongoing due diligence rather than set-and-forget client management.
Common Mistakes in PEP Due Diligence
Additional Resources
- Understand the real difference between CDD, EDD & SDD: Difference Between CDD, EDD & SDD [Complete UK Guide] | FigsFlow
- Make PEP Screening Easy & Efficient with the Best Yet Cheapest AML Check in the UK: Cheapest Anti-Money Laundering Check in the UK | FigsFlow
- Discover the best AML Compliance Practices for Small Accounting Firms: Best AML Compliance Practices for Small Accounting Firms | FigsFlow
- Master the art of Companies House Director Search with our Complete UK Accountant Guide: Companies House Director Search: 2026 Guide to Verified Officers
- Learn why PEP Screening Matters for Accountants & Bookkeepers: Why PEP Screening Matters for Accountants & Bookkeepers | FigsFlow
Simplify your AML compliance with FigsFlow’s seamless verification process.
Conclusion
Enhanced due diligence on PEPs protects your practice while keeping client relationships intact.
The risk-based approach is everything. A UK backbench MP with published expenses needs proportionate checks, not a forensic investigation. A former minister from a high-corruption jurisdiction with unexplained wealth needs detailed scrutiny before you proceed.
Get three things right:
- accurate PEP classification using MLR 2017 definitions without over-classifying junior officials,
- documented risk assessment explaining your lower or higher risk decision, and
- Ongoing monitoring scaled to actual risk rather than generic annual reviews
When you’re unsure whether someone qualifies as a PEP or risk factors seem ambiguous, apply enhanced measures. Three hours of proper due diligence at onboarding beats months of HMRC investigation later.
Frequently Asked Questions (FAQs)
A politically exposed person is someone who holds or has held a prominent public function like a government minister, MP, ambassador, or senior official. These positions create opportunities for corruption and bribery that don’t exist for ordinary clients, which is why they trigger enhanced due diligence requirements under the Money Laundering Regulations 2017.
You need three mandatory elements: senior management approval before establishing the relationship, adequate measures to establish a source of wealth and a source of funds, and enhanced ongoing monitoring throughout the relationship. The extent of these checks should be proportionate to your risk assessment rather than applying identical measures to every PEP.
Domestic PEPs hold prominent positions in the UK, like MPs or government ministers. Foreign PEPs hold similar positions in other countries. International organisation PEPs are directors, deputy directors, or board members of bodies like the UN or NATO. UK domestic PEPs start as lower risk under MLR 2017 compared to foreign PEPs unless other risk factors apply.
PEP classification means the individual’s prominent public position creates a higher potential risk for money laundering or corruption. It doesn’t mean they’re criminals. It means their role requires you to apply enhanced customer due diligence beyond standard identity checks and verification procedures.
In AML compliance, a PEP is a customer who requires enhanced scrutiny because their prominent public function creates vulnerability to corruption. This includes not just the PEPs themselves but also their immediate family members, like spouses, children, parents, and siblings, plus known close associates who have significant business relationships with them.
No. Once a PEP leaves their prominent public function, they must be treated as a PEP for at least 12 months under MLR 2017. After that period, you can declassify them unless specific risk factors justify continuing enhanced measures. Family members and close associates lose PEP classification immediately when the PEP leaves office.
