UK PEP Rules: Regulation 35 and the Domestic PEP Change

Regulation 35 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is the UK rule on politically exposed persons. It was changed in January 2024 to treat domestic politically exposed persons (PEPs) as a lower starting risk than foreign ones. This guide summarises regulation 35 as shown on legislation.gov.uk. It builds on our guides to PEPs for accountants, the Irish rule in section 37 of the Criminal Justice Act 2010 and the firm-wide risk assessment.

Systems to identify PEPs: regulations 35(1) and 35(2)

A relevant person must have risk-management systems and procedures to identify whether a customer, or a customer's beneficial owner, is a PEP, a family member of a PEP, or a known close associate of a PEP, and to manage the resulting enhanced risks. When setting these up, the firm must consider its own risk assessment under regulation 18(1), the inherent money laundering and terrorist financing risk of its business, how far PEP relationships would increase that risk, and relevant information under regulations 17(9) and 47.

Assessing the risk: regulation 35(3)

Once a customer or potential customer is identified as a PEP, family member or known close associate, the firm must assess the level of risk and the extent of enhanced due diligence to apply. The assessment is not automatic: regulation 35 requires a decision based on the firm's own analysis.

The domestic PEP change: regulation 35(3A)

The domestic PEP provisions in regulation 35(3A) and in the definitions took effect on 10 January 2024 under S.I. 2023/1371, according to the page. For a domestic PEP, and their family members and known close associates, the starting point is a lower risk than for a non-domestic PEP. If no enhanced risk factors are present, less enhanced due diligence is required than for a non-domestic PEP. A domestic PEP is a PEP entrusted with prominent public functions by the UK, and a non-domestic PEP is any other PEP. Enhanced risk factors, for these purposes, are risk factors other than the person's domestic PEP status.

Measures for PEP relationships: regulation 35(5)

In addition to the standard measures in regulation 33, a firm proposing to start or continue a business relationship with a PEP, family member or known close associate must do three things: obtain senior management approval; take adequate measures to establish the source of wealth and source of funds involved; and conduct enhanced ongoing monitoring once the relationship is entered into.

Long-term insurance: regulations 35(6) to 35(8)

Firms providing long-term insurance must take reasonable steps to identify whether beneficiaries, or the beneficial owners of beneficiaries, are PEPs or close connections, before any payout or assignment. Senior management must be informed before paying out to a PEP-linked beneficiary, and the policyholder relationship must be scrutinised on an enhanced basis.

After a PEP leaves office: regulations 35(9) to 35(11)

The requirements in regulation 35(5) and 35(8) continue for at least 12 months after the person stops holding the public function, or for longer if the firm considers it appropriate to address money laundering or terrorist financing risk. For family members and known close associates, the requirements stop once the PEP leaves office, whether or not the 12-month period has ended.

The definitions: regulation 35(12) to 35(15)

• PEP: an individual entrusted with prominent public functions, other than as a middle-ranking or more junior official. Regulation 35(14) lists the types of role that count, such as heads of state, ministers, members of parliament and senior judges.
• Family member: the PEP's spouse or civil partner, the PEP's children and their spouses or civil partners, and the PEP's parents.
• Known close associate: an individual known to have joint beneficial ownership of a legal entity or arrangement, or other close business relations with a PEP, or an individual with sole beneficial ownership of a legal entity or arrangement known to have been set up for a PEP's benefit.

For known close associates, regulation 35(15) says a firm need only consider information in its possession or credible public information.

A change that is pending

The legislation.gov.uk page notes pending changes from S.I. 2026/621, including a new regulation 34A. These were not yet reflected in the text of regulation 35 on the page we read, so firms should check the current position before relying on this summary.

Using this in a compliance role: our suggestions

These steps are our suggestions, not requirements in the regulation.

• Document how your procedures treat domestic and non-domestic PEPs differently, and why.
• Record the enhanced risk factors you look for when a domestic PEP would otherwise be treated as lower risk.
• Diarise the 12-month review when a customer stops holding a public function.
• Keep evidence of senior management approval and of the source of wealth work, since regulation 35(5) requires both.

For structured learning, browse our CPD courses.

What we could not confirm

We read regulation 35 as shown on legislation.gov.uk, and the page noted amendments dated 2017 and 2024. We did not read S.I. 2026/621 or any Financial Conduct Authority or HMRC guidance on PEPs, and we did not read regulation 33 or regulation 28. This post is general information, not legal advice.