New guidance eases compliance burden and sharpens focus on real risks

On July 7^th, 2025, the UK’s Financial Conduct Authority (FCA) released its final guidance (FG 25/3) on how politically exposed persons (PEPs) should be treated for anti-money-laundering (AML) purposes under the UK Money Laundering Regulations 2017.

A shift toward proportionate compliance

Following the publication of the GC24/4 consultation on July 18^th, 2024, 26 written responses were submitted by multiple firms and trade bodies across the financial industry, leading to changes made in this finalized guidance. Based on the updates, the FCA’s message is clear: firms should take a proportionate, risk-based approach instead of applying a “one size fits all” policy.

What changes have been made?

As the FCA seeks to ease the burden of the regulations and focus on practical applicability, a host of changes have been made for greater impact and efficiency.

Lower risk presumption for UK PEPs

Domestic PEPs and their associates are now assumed to be low risk unless other factors (e.g., high-risk jurisdiction links, adverse media) apply. Enhanced due diligence (EDD) shouldn’t be automatic.

Clearer definition

Only “truly prominent” UK roles qualify. Local councilors, junior civil servants, and certain non-executive board members are excluded.

Family members

Siblings are now included in the PEP family category.

Approval flexibility

Firms still need to follow Reg 35(5)(a), but sign-off no longer has to be solely by the Money Laundering Reporting Officer (MLRO); trained senior staff can approve with MLRO oversight.

Declassification

Family members and associates should be removed from PEP lists promptly when the main PEP leaves office, unless there’s another risk.

Consumer duty link

Communications must be clear, fair, and proportionate, avoiding any implication of wrongdoing based solely on PEP status.

Preparing for the road ahead

While the regulations may be eased for some, the path forward should remain the same: prepare now based on your specific requirements. This will help to limit costly disruptions and inefficiencies during the transition and provide the opportunity to turn compliance into an advantage. Below, we list the key steps for firms to take.

Update policies & procedures

Revise AML policies, update PEP definition, embed a risk-based approach, and formalize a clear process for how ex-PEPs are declassified.

Strengthen governance

Clearly document who can approve PEP relationships, provide them with training, and ensure the MLRO has oversight and regular Management Information reports.

Train staff

Refresh training and explain the differences between low-risk domestic PEPs and higher-risk foreign PEPs with practical, risk-based examples, focusing on proportionality and fair treatment.

Revise customer processes

Adjust onboarding, EDD, and clear communications to match the new proportionate approach and avoid implying suspicion just because of PEP status.

Operational impact

Adjusting to FG 25/3 will require operational and systems changes:

• Upgrade AML systems so they can tell the difference between domestic and foreign PEPs and apply risk scoring accordingly
• Improve data capture on customers’ roles, influence, and when they leave office to trigger timely declassification
• Adapt workflows to reflect the more flexible sign-off process
• Update training programs and check staff understanding

From compliance to competitive edge

The FCA’s FG 25/3 guidance signals a clear shift: compliance with PEP rules is no longer about blanket processes, but about proportionality, fairness, and sound judgment. For firms, this means rethinking outdated practices, investing in smarter systems, and equipping staff to make nuanced decisions. Those who act early will not only reduce regulatory friction and operational costs but also strengthen client relationships and market credibility.

By treating compliance as a strategic enabler rather than a checkbox exercise, firms can turn the FCA’s new guidance into an opportunity_­ that enhances trust, improves efficiency, and sets them apart in a competitive marketplace.

To read the full guidance, click here.