Politically exposed persons (PEPs) are individuals who hold prominent positions and have a great deal of influence, making them more exposed to criminal activities such as bribery and corruption. Regulators like the Financial Conduct Authority (FCA) require some organisations to conduct specific checks when dealing with PEPs, although the nature of these checks and the extent of enhanced due diligence vary by jurisdiction.
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What is a politically exposed person (PEP)?
In simple terms, a PEP is someone who is more exposed to bribery/corruption due to their prominent political position.
High-risk PEP examples include high-ranking officers in the armed forces, heads of state, senior executives in state-owned corporations, and senior politicians. PEP classification can also extend to the family members and close associates of these individuals.
It does not imply that the designated individual is involved in any illegal activities, but simply that their prominence and influence place them at risk.
Understanding PEP classification is essential for compliance teams, as regulators have been known to levy substantial fines on companies that fail to perform proper due diligence. In July 2025, for instance, Monzo Bank was fined over £21 million for failings that included not developing an internal definition of PEPs.
Why PEP classification matters
The importance of PEP classification and enhanced due diligence for PEPs was thrust into the limelight back in 2023 when Coutts Bank closed Nigel Farage’s account.
The Reform UK party leader was placed in a low-risk PEP category, with the bank stating that it did not “have the appetite” to continue providing banking services. The FCA later ruled that the bank’s actions were lawful, before conducting a review into “debanking”. The review ultimately led to a rule change that will require banks to give customers 90 days’ notice before closing their accounts (beginning April 2026).
In the last few years, sanctions lists and AML regulations have increased drastically, and this places a greater stress on the importance of enhanced due diligence for PEPs.
Implementing proper AML PEP screening procedures is not just about staying compliant. It also protects organisations from high-risk individuals and transactions, as well as the reputation damage resulting from a major regulation breach. For example, the parent company of Coutts, NatWest, suffered significant reputation damage after the aforementioned incident.
PEP risk categories
Proper PEP classification requires an understanding of PEP risk levels. The level of risk will determine the degree of scrutiny.
Check the table below to learn how different PEP tiers influence exposure and screening:
| PEP Category | Definition | Typical Roles | Exposure Level | Screening Required |
| Level 3 | Entities with minimal influence and exposure. Includes regional government officials, such as mayors. They have few international connections and little global authority. Despite the low risk, these entities still require attention. | Cabinet heads. Senior civil servants. Mayors of small, non-capital cities. | Low risk | Enhanced due diligence. Transaction scrutiny. Sanctions list checking. PEP list checks. Source of funds/wealth verification. |
| Level 2 | A level of influence/exposure that is greater than a low-risk entity. Can include consuls and ambassadors, as well as heads of financial institutions and religious leaders. Although they are not in the highest category, they can exert a lot of influence and require vigorous screening. | Judges, magistrates, and prosecutors. Senior diplomats. Mayors of capital cities. | Medium risk | Enhanced due diligence. Transaction scrutiny. Sanctions list checking. PEP list checks. Source of funds/wealth verification. Adverse media screening. |
| Level 1 | The highest risk entity, with far greater exposure and influence than those in the low/medium categories. Can include heads of state and members of parliament. As entities with the greatest risk, individuals in this category must be thoroughly screened. | Heads of state. Senior members of central banks. Senior members of the military/law enforcement. | High risk | Enhanced due diligence. Transaction scrutiny. Sanctions list checking. Ongoing PEP list checks. Source of funds/wealth verification. Adverse media screening. Rigorous checks. |
Low-risk PEP examples
The low-risk PEP category includes many regional government officials, such as mayors, as well as civil servants. These individuals have minimal influence and few international connections. They should be checked against PEP lists and databases and monitored regularly, as their status may change.
Medium-risk PEP examples
While the mayor of a small city is low risk, mayors of major global cities like London wield greater influence and pose a higher risk. This category also includes major religious leaders and senior diplomats, as they have more international connections.
High-risk PEP examples
Common high-risk PEP examples include heads of state and members of parliament. Not only do these individuals have a greater sphere of global influence, but they are also involved in the lawmaking process. Enhanced customer diligence and ongoing scrutiny are essential for ensuring compliance and monitoring activity.
Additional PEP risk considerations
According to a report published by the FCA, politically exposed persons may use close associates or family members to abuse public funds. These individuals are also exposed to bribery and corruption, so they should be given a similar degree of scrutiny.
PEPs can also be categorised as either “domestic” or “foreign”. The former includes many of the examples given above, including those in regional and national government. The latter covers those who hold positions of power or influence in other countries.
Foreign PEPs are deemed higher risk, as they operate under the jurisdiction of a different government. Additional scrutiny is required for foreign PEPs, including techniques like adverse media screening, and enquiring why they wish to conduct business outside of their home country.
Key factors that influence risk categorisation
Level of influence is a major contributing factor when it comes to defining PEP risk levels. The more power and connections they have, the greater the risk.
Their country of origin is also considered—are they domestic or foreign? Do they hail from a country with a higher level of organised crime? Are they exposed (directly or indirectly) to any sanctions?
The Financial Action Task Force (FATF), an intergovernmental agency that sets global standards for money laundering, has created detailed infrastructure concerning PEPs and proper screening, with guidelines followed by various countries. These rules form the foundation for guidelines set by national regulatory agencies, including the FCA in the UK.
How to screen and monitor PEPs effectively
Creating an infrastructure around PEP compliance is key, and there are various tools and strategies that can help with this:
Sanctions and watchlists
Lists such as the UK Sanctions List and OFAC Sanctions List, as well as data published by the EU, show all currently sanctioned entities. These databases can also be searched automatically as part of enhanced due diligence.
KYC and customer identity checks
Know Your Customer (KYC) checks are key to most due diligence processes. They require the organisation to confirm the user’s identity, ensuring that they are who they say they are.
AML procedures and source of funds checks
Anti-Money Laundering (AML) is all about proving that the money being spent/transferred comes from a reputable source, such as employment or an inheritance. It can be tricky in some cases (as with cryptocurrency transfers, which are harder to trace), but is used across the financial, legal, and gambling sectors.
In the gambling sector, identity verification is required by most regulators. In the UK, players are unable to deposit or even play free games until they pass these checks. The fintech and banking sectors employ similar checks, with enhanced due diligence for high-value and high-risk transactions, such as house purchases and sizeable investments.
Adverse media screening
Articles, blogs, comments, and news posts are scrutinised through a process of manual/automated media screening to provide additional due diligence.
For example, a prospective new client or business partner may pass due diligence checks, only for adverse media screening to find red flags related to current or previous business/legal activities.
Future trends in PEP risk categorisation
Many of the tools used in PEP classification and screening are powered by AI. Machine learning algorithms can process data and find anomalies quickly and accurately, paving the way for a future where compliance will be primarily controlled by AI.
As noted in our guide to regulation updates, we are also seeing more coordination, with standardised guidelines and cross-border communication. It means that guidelines will be easier to follow, and with the addition of AI-powered, real-time sanctions list checking, organisations of the future will find it easier to meet compliance regulations.
How A Data Pro helps you screen PEPs
A Data Pro provides a range of services to help you stay secure and compliant. These include due diligence reports, sanctions list checking, PEP databases, and adverse media screening. We use intelligent, human-driven techniques to conduct detailed checks on all risk categories, keeping your business safe while maintaining pace with ever-changing regulations.
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FAQs
What is a PEP risk category?
A PEP (Politically Exposed Person) risk category is a classification used in compliance and due diligence to assess how much risk an individual may pose to a business relationship. The category is determined by factors such as the person’s political influence, seniority of their role, country of residence or activity, and exposure to high-risk sectors. PEPs are typically ranked as high, medium, or low risk.
What is the difference between high and low-risk PEPs?
High-risk PEPs usually hold senior positions, have significant influence, or operate in high-risk regions, which increases exposure to corruption or financial crime. Low-risk PEPs, on the other hand, tend to have limited power, local roles, and fewer international or financial connections.
How does the FCA define politically exposed persons?
The FCA defines a PEP as someone who holds, or has held, a prominent public function in the UK or overseas, making them potentially more vulnerable to bribery or corruption.
What due diligence is required for PEPs?
Due diligence for PEPs involves enhanced checks to verify their identity, assess their source of wealth and funds, and identify any links to corruption, financial crime, or high-risk associates. Ongoing monitoring is also required to track changes in their risk profile.
