Financial Regulators Clarify BSA/AML Requirements Regarding Politically Exposed Persons  

The federal financial regulatory agencies today issued a joint statement addressing how financial institutions should apply a risk-based approach to politically exposed persons consistent with FinCEN’s 2016 customer due diligence rule. The statement does not alter existing legal or regulatory requirements or establish new supervisory expectations.

While the term “politically exposed person” is not explicitly defined in BSA/AML regulations, it generally refers to “foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates.” (That definition does not include U.S. public officials.) In addition, the BSA private banking regulation includes a definition for “senior foreign political official,” a subset of PEPs.

The agencies noted that “not all PEPs are high risk solely by virtue of their status.” They added that “the CDD rule does not create a regulatory requirement, and there is no supervisory expectation, for banks to have unique, additional due diligence steps for customers who are considered PEPs. Instead, the level and type of CDD should be appropriate for the customer risk.”