Europe's Enhanced AML Regulations: Broadening the Scope of Politically Exposed Persons

Europe's latest Anti-Money Laundering (AML) package introduces significant alterations to the definition of politically exposed persons (PEPs), aiming to address financial sector vulnerabilities. According to Alexandra Jour-Schroeder of the European Commission, the changes reflect concerns regarding transactions involving individuals with influential public roles, especially in regions plagued by corruption.

"Relationships with individuals who hold, or who have held, important public functions, within the Union or internationally, and particularly individuals from countries where corruption is widespread, may expose our financial sector to significant reputational and legal risks," explains the European Commission’s Alexandra Jour-Schroeder.

Jour-Schroeder emphasized the importance of the AML Regulation's directives for obligated entities, highlighting measures to manage risks associated with PEPs, their families, and close associates. The Regulation expands the scope of PEPs to encompass:

"Senior executives in medium sized or large enterprises controlled by regional or local authorities; Members of the governing bodies of political parties holding seats at national or local level, representing constituencies of at least 50,000 inhabitants; Heads of regional and local authorities with at least 50,000 inhabitants."

Recognizing varying circumstances across member states, the Regulation allows flexibility for setting lower thresholds for designating PEPs in certain categories.

"In terms of family members of PEPs, this category now includes siblings, in line with the FATF Guidance. To ensure that this does not pose a disproportionate burden on obliged entities, siblings are included only when they are siblings of the most important political officials, holding senior central government posts," Jour-Schroeder told AML Intelligence.

Regarding family members of PEPs, siblings are now included, aligning with FATF Guidance. However, this inclusion is limited to siblings of the most significant political figures holding senior central government positions. Member States have discretion to broaden this definition further, ensuring obligations on obligated entities remain reasonable.

These adjustments underscore Europe's commitment to a risk-based approach in combating money laundering, while also acknowledging the nuances of political exposure across jurisdictions. By expanding and refining the definition of PEPs, the AML Regulation aims to enhance the vigilance of obligated entities and mitigate potential reputational and legal risks in the financial sector.

By fLEXI tEAM