Introduction of Former PEP Rules

Introduction of Former PEP Rules

Statutory amendments effective April 2023 establish a risk-based approach for handling former Politically Exposed Persons.

A long-awaited operational enhancement under the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022 took effect on April 1, 2023, formally introducing the statutory concept of a “former Politically Exposed Person (PEP)” into Hong Kong law. The reform provides practical relief for designated non-financial businesses and professions (DNFBPs), including TCSPs and MSOs, from rigid, perpetual PEP restrictions.

Under the amended provisions of Schedule 2 to the AMLO, an individual who was previously entrusted with a prominent public function outside Hong Kong—along with their immediate family members and close associates—is recognized as a former PEP once they no longer hold public office. Where a TCSP or MSO conducts an appropriate risk assessment and determines that the former PEP does not present a high money laundering or terrorist financing risk, mandatory statutory requirements for senior management pre-approval and ongoing enhanced monitoring no longer automatically apply.

This legislative change shifted PEP risk mitigation from a mechanical checkbox exercise to a defensible, risk-based methodology. Compliance teams were instructed to update their screening engines and internal onboarding policies to distinguish active PEPs from former officials, ensuring documented risk assessments support any reduction in ongoing due diligence.