What is a politically exposed person? A guide for businesses

If you run a business, you may come across the term politically exposed person (PEP) when opening a business bank account, applying for finance, onboarding a new customer, or carrying out checks on a supplier or partner. PEPs are not automatically high risk or doing anything wrong. However, because of their position and influence, the law recognises that there can be a higher risk of bribery, corruption, or misuse of public funds. This is why UK anti money laundering rules require businesses to take a risk based and proportionate approach.

For companies that credit check other businesses, PEP risk is particularly relevant. It often sits alongside other warning signs such as complex ownership structures, overseas connections, unusual funding, or negative media coverage. Understanding PEP exposure helps you protect your cash flow, your reputation and your relationships with lenders and regulators.

What is a politically exposed person?

Under UK law, a politically exposed person is an individual who is, or has been, entrusted with a prominent public function. This can be in the UK or overseas, and it can be through a government role, a public institution, or an international organisation. The definition also includes certain family members and known close associates, as their finances may be closely connected to the PEP.  Examples of prominent public functions include senior politicians, members of parliament, senior judges, high-ranking military officials, senior executives of state-owned enterprises, and senior officials of international bodies. The exact scope is set out in UK anti-money laundering regulations. A common misconception is that being a PEP means someone is corrupt or untrustworthy. In reality, it simply reflects a higher potential exposure to certain risks and the need for appropriate checks. The length of time someone is treated as a PEP depends on the role they held and your ongoing assessment of risk.

UK regulations now make a clearer distinction between domestic PEPs and foreign PEPs. Domestic PEPs, meaning those holding or having held prominent public roles in the UK, are treated as lower risk by default, although a proper assessment is still required. This change reflects a move towards fairness and proportionality, rather than automatic assumptions of high risk. This approach is explained in the FCA’s and HM Treasury’s review of the treatment of politically exposed persons.

UK legislation on PEPs

The main legal framework for PEPs in the UK sits within the Money Laundering Regulations 2017. These regulations require certain businesses to carry out a business wide risk assessment, identify higher risk relationships, and apply enhanced due diligence where needed. PEPs are specifically highlighted as a category that requires closer attention.

Enhanced due diligence does not mean refusing to do business. It means taking extra steps to understand who you are dealing with, where money comes from, and whether the overall risk is acceptable. In this article, you can read more about enhanced due diligence.

Why do PEPs matter to your business?

Many business owners associate PEP checks with banks and large financial institutions. In reality, PEP risk can have very real commercial consequences for everyday businesses.

PEP exposure matters for several key reasons:

• Payment risk
  Corruption or misconduct risk can quickly turn into payment risk. A business linked to a PEP may face investigations, frozen accounts, loss of banking facilities, or cancelled contracts. Any of these issues can disrupt cash flow and affect the ability to pay invoices on time.

• Reputational risk
  Supplying or partnering with a business that later becomes linked to a corruption scandal can affect how lenders, insurers, customers, and even your own suppliers view your business.

• Legal and regulatory risk
  Some businesses have direct legal obligations. If your company operates in a regulated sector under the Money Laundering Regulations, such as accountancy, property, or company services, you are required to assess PEP risk and apply enhanced checks where appropriate. Even if you are not regulated, many of your partners, lenders, or customers will be, and they may expect you to demonstrate that you manage these risks responsibly.

How to factor PEP risk into your company credit checks

The risk linked to a politically exposed person sits with the individuals behind a business, rather than the company itself. This usually includes directors, persons with significant control, and, in some cases, ultimate beneficial owners or guarantors. A sensible starting point is identifying the right people to check. When you run a company credit check, the credit report shows ownership and control structures clearly. This makes it easier to see who needs to be reviewed and helps you focus on the individuals who matter most. When assessing PEP risk as part of a credit check, it helps to:

• Verify any PEP matches carefully to avoid false positives, particularly where names are common

• Confirm key details such as date of birth, country, and career history

• Look at the wider context rather than treating PEP status as a pass-or-fail result

Once you have reliable information, the next step is to make a risk-based decision. Instead of applying blanket rules, consider the full picture, including:

• Whether the PEP is domestic or foreign

• How transparent the ownership and control structure is

• Whether there is any negative media coverage

• How normal the trading activity appears

In many cases, the right response is not to decline the relationship, but to adjust your credit terms. This might involve lower initial credit limits, shorter payment terms, staged payments, or more frequent reviews. These steps can reduce your exposure while still allowing you to trade. Keeping a short written record of your decision is also good practice. Being able to explain what you found and why you took a particular approach can be valuable if questions arise later from lenders, auditors, or partners.

A practical checklist for business owners

Here’s a useful checklist you can use when assessing PEP risk:

• Confirm the company’s identity, directors, and ownership structure.

• Screen relevant individuals for PEP exposure and verify any matches carefully.

• Check sanctions exposure separately and do not assume PEP status means sanctions.

• Review adverse media and look for unexplained complexity in ownership or funding.

• Adjust credit terms where appropriate rather than relying on yes or no decisions.

• Document your reasoning so you can explain your approach if needed.

Taking a structured and proportionate approach to PEP risk helps you make better credit decisions and protect your cash flow, without creating unnecessary barriers to trading. In practice, PEP checks work best when they form part of a wider company credit check, rather than being treated in isolation. With a Capitalise account, you can run company credit checks quickly, review ownership and control information in one place, and build PEP considerations into your normal credit process. This makes it easier to set sensible credit terms and make confident decisions about who you trade with.