Identifying politically exposed persons and sanctioned individuals is a core AML obligation, but it is one where the rules have recently shifted.
Here is what PEP and sanctions checks involve, who they apply to, and what the updated rules mean for how firms should approach them.
Why do PEP and sanctions checks matter in AML compliance?
PEP and sanctions screening sit within the broader customer due diligence framework, but they carry particular weight. The concern with politically exposed persons is that their public position creates an elevated risk of corruption or bribery, and that property transactions are a well-established route for laundering the proceeds.
Sanctions checks serve a different but equally serious purpose. They ensure that firms are not facilitating transactions involving individuals or entities subject to legal restrictions.
Both checks are required at onboarding, and both must be kept up to date throughout the life of a matter. A client who was not a PEP at the outset may become one, and sanctions lists are updated frequently.
What is a politically exposed person (PEP)?
A PEP is an individual who is, or has been, entrusted with a prominent public function. This includes heads of state and government, ministers, members of parliament, senior members of the judiciary, senior military officials, members of central banks, and ambassadors, along with their close family members and known close associates.
Under the Money Laundering Regulations, identifying a client as a PEP triggers enhanced due diligence. This includes obtaining senior management approval, taking steps to establish the source of wealth and source of funds, and applying closer ongoing monitoring.
Importantly, being a PEP does not mean refusing to act. It means applying additional scrutiny and documenting the approach taken.
How have the rules on domestic PEPs changed?
The treatment of domestic PEPs, meaning those who hold or have held public functions in the UK, has changed in recent years.
Since January 2024, the Money Laundering and Terrorist Financing (Amendment) Regulations 2023 require firms to treat domestic PEPs as lower risk than foreign PEPs as a starting point. This is now set out in legislation, rather than guidance. Unless other risk factors are present, firms should apply a proportionate level of enhanced due diligence.
Further clarification was provided in FCA guidance FG 25/3, published in July 2025. This confirms that non-executive directors of UK civil service bodies should not be treated as PEPs, and reinforces that firms should not refuse or exit relationships solely because a client meets the PEP definition.
In practice, this means risk should be assessed on a case-by-case basis, rather than applied automatically based on a public role.
What are sanctions and how do they apply to law firms?
Sanctions are legal restrictions imposed by governments or international bodies on individuals, companies, or countries, often in response to national security concerns, human rights issues, or foreign policy objectives. In the UK, the Office of Financial Sanctions Implementation within HM Treasury administers the sanctions regime.
Firms in the regulated sector must not provide services to sanctioned individuals or entities, or facilitate transactions that would benefit them. Breaching sanctions can result in significant criminal and civil penalties, including fines and imprisonment.
Unlike PEP status, which requires judgement around risk, a sanctions match is a clear prohibition. If a client appears on a sanctions list, the matter cannot proceed without specialist legal advice, and reporting obligations may arise.
How often should PEP and sanctions checks be updated?
PEP and sanctions checks should not be treated as a one-off exercise. Both need to be refreshed throughout the life of a matter.
PEP status can change if a client takes on a new public role, and sanctions lists can be updated at short notice in response to international developments. Relying on a single check at onboarding creates a risk that changes will go unnoticed.
Manual processes make this difficult to manage consistently. Automated screening tools that re-check clients against current databases at regular intervals provide a more reliable way to identify changes in status.
Taken together, PEP and sanctions checks are not just about identifying risk at the outset, but about maintaining an accurate and up-to-date understanding of a client’s status throughout the life of a matter. While PEP classification requires proportionate judgement and a risk-based approach, sanctions obligations are absolute and leave no room for discretion.
The direction of travel in regulation is clear: firms are expected to apply these checks consistently, keep them current, and ensure that any changes in status are identified and acted on promptly.
AML compliance is not just about checking individual clients. Every firm in the regulated sector must also have a set of firm-level obligations in place that are documented, approved, and actively maintained.
Here is what the law actually requires, and what good governance looks like in practice, in just 5 minutes.
Why is AML compliance more than just client checks?
When people think about AML compliance in conveyancing, they tend to focus on client-facing checks such as verifying identity, understanding source of funds, and screening for PEPs and sanctions. These obligations are real and important, but they sit on top of a layer of firm-wide requirements that must be in place first.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 impose obligations on the firm as an entity, not just on individual fee-earners dealing with specific matters. Getting these foundations right is critical, as the SRA’s supervisory findings consistently show that weaknesses at firm level tend to flow directly into weaknesses at matter level.
What is a firm-wide AML risk assessment and why does it matter?
The starting point is Regulation 18, which requires every firm in the regulated sector to carry out and document a firm-wide risk assessment. This is a written analysis of the money laundering and terrorist financing risks the firm is exposed to, taking into account its size, client base, the services it offers, the geographic areas it operates in, and the types of transactions it handles.
The assessment must be approved by senior management and kept up to date. It is not a one-off exercise. It should be reviewed whenever the firm’s circumstances change materially, and at regular intervals regardless.
This matters because it sets the context for everything that follows. It defines what higher and lower risk look like for the firm, which in turn informs how individual client and matter risk assessments should be approached.
Who is responsible for AML compliance in a law firm?
Every firm in the regulated sector must appoint a Money Laundering Reporting Officer (MLRO). This is a named individual, typically a senior person within the firm, who is responsible for receiving internal reports of suspicious activity, deciding whether to submit a Suspicious Activity Report to the National Crime Agency, and overseeing the firm’s AML compliance more broadly.
The MLRO role carries real responsibility. The individual appointed needs sufficient seniority, authority, and access to information to carry out the role effectively. In smaller firms, this is often a principal or partner. In larger firms, it may be a dedicated compliance professional. In all cases, the appointment must be documented and properly supported, rather than treated as a formality.
What AML policies, controls and procedures are required?
Regulation 19 requires firms to establish and maintain written AML policies, controls and procedures. These should cover how the firm identifies and verifies clients, how it assesses risk, how it monitors ongoing matters, how suspicious activity is reported internally, how staff are trained, and how compliance is audited.
The policies do not need to be lengthy, but they do need to be meaningful. The SRA has identified cases where firms have adopted template policies without tailoring them to their actual practice, which fails the requirement. Policies should reflect how the firm operates in reality, and staff should understand and follow them in practice.
What AML training do staff need to receive?
All relevant staff must receive regular AML training. This includes not only fee-earners, but anyone involved in client onboarding, financial transactions, or file management. Training should cover what money laundering is, what the firm’s obligations are, how to identify suspicious activity, and how to report concerns internally.
Training also needs to be kept current. A one-off session delivered several years ago is not sufficient. Firms should be able to demonstrate when training was delivered, who received it, and what it covered.
When is an independent AML audit required?
Larger firms, or those with a higher-risk profile, are required under Regulation 21 to have their AML policies and controls independently audited. This does not necessarily mean appointing an external auditor. In some firms, it can be an internal function that sits outside the compliance team.
The key requirement is independence. The purpose of the audit is to assess whether the firm’s AML framework is actually working in practice, rather than simply existing on paper.
Taken together, firm-wide AML obligations form the foundation of effective compliance. A documented risk assessment, a clearly defined MLRO role, tailored policies, regular training, and independent oversight are not separate requirements but parts of a single system.
Where firms fall short is often not in having these elements in place, but in failing to connect them or keep them active. The regulatory expectation is clear: these controls should shape how the firm operates day to day, not exist as static documents created to satisfy a requirement.
On the latest episode of Landmark Talks Property, we were joined by OneSearch Client Relationship Manager John Margett and Tom Lyes, Head of Legal at Armalytix, to take a deep dive into the complexities surrounding Source of Funds (SoF) and Anti-Money Laundering (AML) guidance within the legal sector, particularly for conveyancing.
The conversation unpacks the crucial ‘golden triangle’ of technology, people, and processes, emphasising that all three must be harmoniously integrated and invested in for effective AML. Tom shares his perspective on how the residential property sector has notably adapted to tightening AML pressures, even setting a precedent for other industries. Looking ahead, the discussion touches on the future of AML, including reducing duplication, the continued evolution and wider adoption of technology, the potential of Open Finance, and the ultimate aim of making UK property a robustly defended hard target against illicit funds.
To watch the webinar which accompanies this audio podcast, please click here.
To listen to more Landmark Talks Property episodes on Spotify, click here.
To find out more on Armalytix please visit armalytix.com
Is your firm struggling with the requirements of Anti-Money Laundering compliance?
You’re not alone. The latest industry standards and guidelines are complex, and the cost of non-compliance can be substantial.
Our infographic highlights the hidden expenses associated with manual KYC checks, missed deadlines, and non-compliance penalties in 2026. It also shows how OneSearch can help you significantly lessen these costs and improve your bottom line.
Tired of spending hours on Anti-Money Laundering checks?
We’ve all been there. But what if you could streamline the process and get it done in minutes?
In the following video, we’re introducing you to OneSearch AML, your one-stop shop for fast and efficient Anti-Money Laundering checks. We’ll take you step-by-step through the process of adding OneSearch AML to your conveyancing order, and show you exactly what your client will experience during verification.
See how it works in the video below:
Get ready to say goodbye to lengthy AML processes and hello to a smoother conveyancing experience!
We are delighted to launch our new innovative AML check designed to enhance the way property professionals manage compliance and transactional due diligence.
OneSearch AML harnesses market-leading technology and offers conveyancers an up to date Know Your Client checker in the fight against fraud in the sector, all whilst ensuring adherence to recently updated industry standards and guidelines.
Ongoing monitoring
New digital advancements have meant that previous methods of identity verification within the legal setting such as manually checking documents, face-to-face meetings, and waiting for postal deliveries for documents have become outdated. Now, with biometric scanning, NFC technology, secure encryption, and cloud-based storage, ID checks are a far more safe, accurate, and effortless part of the conveyancing process.
Furthermore, OneSearch AML offers ongoing monitoring checks, which provides post-sale examinations of any changes, developments, or updates to customers profiles over a 12-month period.
Robin Wells, Head of Sales Operations at OneSearch added:
“The launch of OneSearch AML underlines our ongoing commitment to empowering conveyancers in navigating their day-to-day workflow, and in this case, support for any complexities that run alongside AML due diligence.
“For us, we know and understand the complexities of KYC regulations of our clients – assessing risks, identifying suspicious activities, and especially ongoing monitoring are all imperative to our customers and to the industry as a whole. OneSearch AML solution delivers quick, secure, and accurate cover across all these areas.”
Challenges in Anti-Money Laundering Compliance
The launch aligns with insights from the SRA’s Anti-Money Laundering annual report, revealed in October 2023, which highlighted certain areas needing attention within law firms. Among the observations, it was noted that a portion of reviewed firms, specifically 66 out of 224, require additional support to fully comply with anti-money laundering regulations. Unfortunately, the legal sector often faces challenges regarding money laundering, contributing to a broader concern around the flow of approximately £100 billion in illicit funds through UK businesses and financial institutions each year.
Elizabeth Jarvis, Managing Director at OneSearch said:
“The message from the SRA annual report was clear. All legal firms need to ensure they are committing time and resources to counteract modern money laundering attempts, and we offer our strongest support with OneSearch AML.
“The service has been created to be the single, comprehensive solution for our customers, easing any worry or burden they may have over how best to comply with all relevant standards and guidelines.”