Uk Regulatory Changes Domestic Peps
On January 10, 2024, the way UK firms treat PEPs changed. Amendments to the Money Laundering Regulations took effect that day, and they recast domestic PEPs as inherently lower risk than non-domestic ones, which means the starting point for due diligence is now lighter on a domestic official unless something else about the customer raises the risk. Regulated firms felt it immediately. How they run risk assessments, apply enhanced due diligence, and screen public officials and their families all shifted as a result.
Background on PEPs
A PEP is someone who holds a prominent public function, at home or abroad. Roles like these tend to attract higher exposure to bribery, corruption, and other financial crime, which is why banks and other regulated firms have long applied Enhanced Due Diligence (EDD) to them as a matter of course.
What's new is the split. Regulators now draw a line between domestic and foreign PEPs and attach different risk assessments and due diligence expectations to each.
What Changed in the UK Regulations
The government's amendments to the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017, known as the MLRs, reworked how domestic PEPs are handled. They came into force on January 10, 2024.
Under the change, a domestic PEP now sits at a lower baseline risk than a non-domestic one. Absent other higher-risk factors, any EDD applied to a domestic PEP should go no further than what a non-domestic PEP would attract, and usually less.
The aim was a more proportionate, risk-based treatment of domestic PEPs. Several sectors fall within its reach, the financial industry among them. For how institutions actually run compliance, the implications are substantial, and the move marks a real change in how PEP risk gets managed.
What Is PEP and Sanctions Screening?
PEP and sanctions screening means checking a customer against two kinds of lists: politically exposed persons, and the sanctions lists that governments and international bodies maintain. The point is to spot elevated financial-crime risk early, both before the relationship starts and while it continues, whether that risk attaches to the customer or to someone connected to them.
Firms usually run the two checks together because the questions sit side by side. One is legal. Sanctions screening asks whether you are flat-out prohibited from dealing with a person or entity, full stop. PEP screening asks a softer question: does this customer's public role mean the relationship deserves a closer look? Here is where the revised UK approach bites. A positive PEP match on a domestic official no longer slots that person straight into the highest risk tier, yet it still kicks off an assessment of the factors that decide how much due diligence is warranted.
Domestic PEPs vs Non-Domestic PEPs
Look at the practical effect and the domestic-versus-non-domestic divide is the clearest part of it. Domestic PEPs are no longer waved into the high-risk bucket automatically by banks and other regulated firms. These firms instead apply a lower level of EDD to a domestic PEP, stepping it up only where other risk factors justify the closer scrutiny.
Plenty of people read this as a good thing. It cuts down on the needless friction that public servants and their families ran into when trying to access financial services. Non-domestic PEPs sit elsewhere. For them, the higher baseline that PEP status has always carried still stands.
PEP Screening in Banking After the Changes
Compliance teams have homework. Procedures and systems need to be revised so the new risk assessment requirements for domestic PEPs are reflected, and that work tends to span several fronts: rewriting policies and procedures, training staff on what the regulations now say, and in some cases reworking the risk assessment tools themselves.
Inside banking, PEP screening runs through onboarding and keeps going for the life of the relationship. A lower starting point for domestic PEPs takes nothing away from the duty to screen. What it changes is the depth of diligence once a domestic match is confirmed and nothing else flags as high risk. Circumstances move. A domestic PEP's situation can shift in a way that suddenly justifies enhanced measures, and catching that shift is exactly why ongoing monitoring carries as much weight as the first check at the door.
Risk Assessment Considerations
Several factors feed the risk call on a domestic PEP, and the regulations expect firms to weigh them. What the public role actually involves. How much access it gives to public funds. The transparency and integrity of the public administration the person works within, plus anything else that bears on the risk in front of you.
A risk-based approach sits at the heart of this. The idea is to calibrate. Rather than bolt the same fixed level of scrutiny onto every PEP, a firm tunes its due diligence to the specific risk a given customer presents, and it writes down the reasoning behind each call so the decision can stand up to later review.
Reaction from Industry Experts
Welcome in some quarters, the change has also stirred up debate. A recurring worry is that the revised rules could prove confusing to put into practice.
People want to know when enhanced measures actually get triggered, how the higher-risk factors are meant to be spotted, and whether any of this dulls a firm's ability to catch and stop financial crime in the first place.
FCA's Review of PEP Guidance
The Financial Conduct Authority (FCA) responded to both the regulatory shift and the expert concerns by opening a review of its own guidance on how PEPs are treated.
That review was due to report by the end of June 2024. It set out to examine how firms apply the PEP definition, run their risk assessments, carry out EDD and ongoing monitoring, decide whether to reject or close a PEP's accounts, and keep their PEP controls under regular review.
Future Outlook
The rules here are unlikely to stand still. As the consequences of the amendment come into sharper focus, expect the regulatory picture for PEPs to keep shifting, which means firms will need to track those developments closely and keep their compliance procedures and systems both current and effective rather than treating the 2024 change as a one-off update they can file away.
Getting domestic PEP treatment right has little to do with screening more. It is about screening precisely, then holding a defensible record of why each decision went the way it did. Book an AML screening demo to see how this works on live cases.
How KYC Hub Supports PEP and Sanctions Screening
KYC Hub provides an end-to-end AML screening and ongoing monitoring solution built for precisely this kind of risk-calibrated work. The platform runs deep AML screening across PEP and sanctions data, then keeps that screening live through continuous monitoring and AML alerts, so when a domestic PEP's circumstances change, the shift surfaces instead of sitting unnoticed in the gap between annual reviews.
Matching against lists is only the start. The platform also pulls in global adverse media intelligence and network intelligence to put context around a match, and its global data coverage keeps screening consistent across both domestic and non-domestic exposure. That mix backs the proportionate, risk-based approach the UK rules now ask for. It also leaves an audit trail of how each PEP decision was reached.
Book an AML screening demo to see how KYC Hub handles domestic PEP screening end to end.
Conclusion
For UK firms, the domestic-PEP changes amount to a real change in how PEP risk gets managed. Some have welcomed them. Others have surfaced questions and concerns that still need working through before the dust settles.
The practical job now falls to compliance functions, who will need to watch these developments closely and adapt their procedures and systems to match.
