On 21 Nov 2025, the HKMA issued guidance clarifying risk-based AML/CFT controls for PEPs, confirming that 'once a PEP, always a PEP' under existing requirements. The guidance details identification procedures, mandates proportionate EDD for Non-Hong Kong PEPs and high-risk Hong Kong PEPs, and specifies that former PEPs require risk assessment to determine continued EDD needs, with Hong Kong PEPs generally posing lower ML/TF risks.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 21 Nov 2025, the Hong Kong Monetary Authority (HKMA) issued Guidance on risk-based AML/CFT controls for politically exposed persons (PEPs), clarifying the application of existing AML/CFT requirements to PEPs, their family members, close associates, and entities with PEP risks under the current regulatory framework.
Definition and Categories of PEPs
The guidance defines a Politically Exposed Person (PEP) as a natural person entrusted with a prominent public function, categorised into Hong Kong PEPs, Non-Hong Kong PEPs, and PEP organisation PEPs. It clarifies that 'once a PEP, always a PEP' due to the definition's inclusion of 'is or has been' in the public function, meaning PEP status persists post-tenure and requires ongoing risk assessment.
Rationale for Enhanced Controls
PEPs are subject to special AML/CFT treatment due to their potential for abuse of power and influence in committing predicate offences like corruption and bribery. The guidance emphasises that these requirements are preventive, not stigmatising, and align with international standards to mitigate ML/TF risks.
Identification and Risk Assessment
Financial institutions must identify PEPs, family members, and close associates through risk-based procedures, prioritising Customer Due Diligence (CDD) as the primary source. They should avoid sole reliance on customer declarations, corroborate with other information sources, and apply proportionate measures considering social-economic contexts. Ongoing monitoring is required to detect changes in PEP status or risk profile.
Enhanced Due Diligence (EDD) Application
Non-Hong Kong PEPs always require PEP-specific EDD measures, while Hong Kong PEPs or International Organisation PEPs only require EDD if a risk assessment identifies high ML/TF risk. EDD measures include establishing source of wealth/funds, senior management approval for business relationships, and enhanced ongoing monitoring. The guidance stresses proportionality to avoid unnecessary barriers to banking services.
Special Guidance for Hong Kong PEPs
Given Hong Kong's low domestic corruption ML risk, Hong Kong PEPs generally present lower risks than Non-Hong Kong PEPs. Institutions should apply PEP-specific EDD only for high-risk relationships (e.g., where business nature or PEP involvement indicates elevated risk), as illustrated in the guidance's good practices. For example, standard CDD suffices for a Legislative Council member applying for a residential mortgage without additional risk factors.
Treatment of Former PEPs
Former PEPs (no longer entrusted with prominent public functions) require risk-based assessment to determine continued EDD needs. Factors include time since office, residual influence, position seniority, and function linkage. If deemed low-risk, former PEPs and their family/close associates should revert to standard customer treatment. Institutions must establish internal controls for oversight, including procedures to assess risk upon PEP departure and ongoing monitoring of PEP relationships.
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