Financial services watchdog issues guidelines on politically exposed persons

The Malta Financial Services Authority (MFSA) has issued ‘guidance notes’ on Politically Exposed Persons (PEPs) as part of its efforts to strengthen its anti-money laundering (AML) procedures, the authority said on Monday.

“This is another step in the MFSA’s efforts to enhance AML supervision and tackle international challenges posed by money laundering in line with international best practice and commitments with international counterparts and supervisory bodies,” the MFSA said.   

The financial services watchdog said it expected “all persons and entities licensed or otherwise authorized by it, that are carrying out financial business or similarly relevant activity, to comply with their anti-money laundering and combatting financing of terrorism (AML/CFT) obligations under the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR). This, it said, included the requirement to “apply a risk based approach to identifying PEPs and to apply appropriate Enhanced Due Diligence measures when dealing with PEPs.

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The authority’s supervisory practices have been questioned recently, in light of the MFSA’s handling of Pilatus Bank, which is known to hold accounts for a number of PEPs.

The European Banking Authority (EBA) said in July that it believed Malta’s FIAU to have breached EU law in its handling of the bank. As regards the MFSA, the EBA said that while there were concerns about the manner in which the bank was granted authorization, and that in which it was supervised, it was difficult to conclude there were clear breaches of EU law.

“In view of the higher risk attributed to PEPs, the PMLFTR require subject persons to apply EDD measures when they are offering services to PEPs,” the MFSA said. “Family members of PEPs and persons known to be close associates of PEPs shall be subject to the same EDD measures which are applicable to PEPs in view of their similar risk profile.”

Furthermore, the MFSA said that subject persons are required to carry out customer due diligence (CDD) measures which are proportionate to the risks posed by the customer. “This applies also to a PEPs and family members and persons known to be close associates of PEPs.”

The MFSA added that “not all PEPs pose the same level of risk and the EDD measures to be applied should be proportionate to the risk attributed to a particular PEP”.

Finally, it said the guidance notes “outline and provide information on the application of the Enhanced Due Diligence measures to be taken by subject persons in the case of PEPs, family members and close associates”.

This, it said, consisted of obtaining senior management approval prior to providing a service to a PEP, family member of close associate; taking adequate measures to establish the source of wealth and funds involved; and conducting enhanced ongoing monitoring.

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