Managing the risk posed by Politically Exposed Persons - Thematic Review (2023-07-27)

Summary

This is a thematic review report published by the Guernsey Financial Services Commission (GFSC) summarising the findings of its 2022 to 2023 review of how banks, fiduciaries, fund administrators, insurers and lawyers identify, risk-assess and monitor Politically Exposed Persons (PEPs) under the Handbook on Countering Financial Crime and Terrorist Financing. It does not create new rules but sets out supervisory expectations and areas for improvement against existing Handbook and Schedule 3 requirements, and firms are expected to consider the findings in their own PEP controls.

• Identification of PEP positions: Firms should document the prominent public positions that trigger foreign and international organisation PEP status.
• Identification of close associates: Firms should not rely solely on commercial screening databases and should apply controls to identify close associates of PEPs.
• Tailoring policies and procedures: PEP policies should reflect the firm's own specific controls rather than simply copying Handbook text.
• PEP risk assessment: Risk assessments should go beyond a tick-box approach and document the specific risks posed by each PEP relationship.
• Source of wealth and source of funds: Assessments of SOW/SOF should consider and document the plausibility and risk of the funds, not just gather corroborating documents.
• Management information: Senior management should receive detailed reporting on the firm's PEP exposure, trends and problem relationships.

The report also restates the three PEP categories (foreign, domestic and international organisation PEPs) and the rules on declassification, and includes self-assurance questions firms can use to benchmark their own PEP frameworks. It confirms that all firms subject to the Handbook, not just those reviewed, are expected to manage PEP risk in line with these findings, and that the Commission will consider firms' responses as part of ongoing supervision.

Key obligations

• Firms must undertake enhanced customer due diligence (ECDD) on foreign PEPs and assess and document the risk posed by domestic and international organisation PEPs.
• Firms must document, in their policies and procedures, the prominent public positions that they treat as exposing the firm to foreign and international organisation PEP risk.
• Firms must identify immediate family members and close associates of PEPs, using measures beyond reliance on commercial screening databases alone.
• Firms must tailor their PEP policies and procedures to their own specific business and risk profile rather than reproducing Handbook text without adaptation.
• Firms must conduct and document a risk assessment specific to each PEP relationship, differentiating between foreign, domestic and international organisation PEPs.
• Firms must corroborate and document consideration of the risk posed by a PEP's source of wealth and source of funds, including plausibility and geographical/industry risk factors.
• Firms must provide senior management and the Board with sufficiently detailed management information on PEP exposure, trends, SARs and periodic reviews.
• Firms should ensure beneficial ownership information for Guernsey companies involved in PEP structures is accurately filed and kept up to date with the Guernsey Registry.

Applies to

banks, fiduciaries, fund administrators, insurers, lawyers, firms subject to Schedule 3 and the Handbook on Countering Financial Crime and Terrorist Financing