FATF PEP guidance: requirements and Australian rules
FATF’s PEP guidance, under Recommendations 12 and 22, says firms must find out whether a customer is a politically exposed person. Foreign PEPs always need senior management approval, source of wealth and funds checks and enhanced monitoring; domestic PEPs need them only when the risk is higher. Australia’s AML/CTF Act applies the same split.
This guide is for compliance staff in accounting, legal, real estate and financial firms that deal with politically exposed persons (PEPs). It covers the rules set by the Financial Action Task Force (FATF) and how they are applied by the Australian Transaction Reports and Analysis Centre (AUSTRAC). The facts are checked against FATF and AUSTRAC pages on 21 October 2026.
What is FATF’s PEP guidance?
FATF is the inter-governmental body that sets the global anti-money laundering standard. More than 200 countries and jurisdictions have committed to implement its standards.
Two of its 40 Recommendations deal with PEPs. Recommendation 12 sets the rules for financial institutions. Recommendation 22 applies them to real estate agents, lawyers, accountants and other designated businesses when they carry out certain transactions for a client.
FATF explains both in its guidance paper Politically Exposed Persons (Recommendations 12 and 22), published in June 2013. FATF calls the rules preventive, not criminal: being a PEP does not mean someone is involved in crime.
Who counts as a PEP under FATF?
A PEP is someone who is, or has been, entrusted with a prominent public function. FATF names three types. What separates them is who entrusted the role, not the person’s nationality.
- Foreign PEP: a prominent public function for a foreign country
- Domestic PEP: the same kind of function in your own country
- International organisation PEP: senior management of an international organisation, such as directors, deputy directors and board members
FATF’s examples include heads of state or government and senior politicians. They also include senior government, judicial or military officials, senior executives of state-owned corporations and important political party officials. Middle-ranking and junior officials are excluded.
The rules also cover family members, related by blood, marriage or civil partnership. They cover close associates too, meaning people closely connected to a PEP socially or professionally. FATF leaves each country to define both terms, because they depend on local social and cultural structures.
What does Recommendation 12 require?
What FATF Recommendation 12 requires, by type of PEP
| Measure | Foreign PEP | Domestic or international organisation PEP |
|---|---|---|
| Find out if the person is a PEP | Risk-management systems | Reasonable measures |
| Senior management approval | Always | Higher-risk relationship only |
| Source of wealth and source of funds | Always, by reasonable measures | Higher-risk relationship only |
| Enhanced ongoing monitoring | Always | Higher-risk relationship only |
| Family members and close associates | Same measures as the PEP | Same measures as the PEP |
Sources: FATF, The FATF Recommendations (Recommendation 12); FATF, Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013 Reviewed
Every PEP measure sits on top of normal customer due diligence. What changes by type is whether the extra measures always apply, or only when the relationship is higher risk.
For foreign PEPs, FATF requires four things: risk-management systems to find them, senior management approval, reasonable measures to establish source of wealth and source of funds, and enhanced ongoing monitoring. The guidance treats foreign PEPs as always high risk.
For domestic and international organisation PEPs, you take reasonable measures to find out whether the person is a PEP. Then you assess the risk. The last three measures apply only to a higher-risk relationship.
How long does someone stay a PEP?
FATF defines a PEP as someone who is or has been in a prominent role, so the status can outlast the job.
Key point
Under FATF’s 2013 PEP guidance, firms handle a former PEP on an assessment of risk, not a prescribed time limit.
FATF suggests three risk factors to weigh:
- the informal influence the person could still exercise
- how senior their former position was
- whether their former and current roles are linked, for example through a successor they appointed
Australia is close but not identical. AUSTRAC says a person stops being a PEP when they leave the position, but you still need senior manager approval to serve a former PEP.
AUSTRAC suggests weighing similar factors. They include the time since the person left the role, and whether they are still prominent and politically connected.
How does Australia apply FATF’s PEP rules?
- Law
- AML/CTF Act 2006 and AML/CTF RulesAdministered by AUSTRAC
- Tranche 2
- From 1 July 2026Accountants, lawyers, conveyancers and real estate agents
- Foreign PEP
- Enhanced due diligence, always
- Domestic or international organisation PEP
- Enhanced due diligence where the customer is high risk
- Who you check
- Customer, anyone acting for them, beneficial owners, anyone the service is for
- When
- Before you provide the serviceThen monitor for anyone who becomes a PEP
- Former PEP
- No longer a PEPSenior manager approval still required; enhanced due diligence if high risk
Sources: AUSTRAC, Politically exposed persons (PEPs); Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (ss 26E, 26F, 26K, 26M, 175) Reviewed
Australia sets its PEP rules in the AML/CTF Act and the AML/CTF Rules, which AUSTRAC administers. From 1 July 2026 the rules also cover accountants, lawyers, conveyancers and real estate agents.
The Act uses FATF’s three types and the same split by risk. It lists the roles that make someone a domestic PEP, from members of parliament and High Court justices to the heads of local councils.
Key point
Under Australia’s AML/CTF Act, a reporting entity must apply enhanced due diligence whenever a customer or their beneficial owner is a foreign PEP.
For a domestic or international organisation PEP, enhanced due diligence, senior manager approval and source of funds and source of wealth apply where the customer is high risk. Your Assess workflow rating decides which case you are in.
You must establish on reasonable grounds whether a PEP is involved before you provide the service. That covers the customer, anyone acting for them, any beneficial owner and anyone the service is for.
Australia defines close associates more narrowly than FATF’s social or professional test. They are people known, from public or readily available information, to share beneficial ownership or close business relations with a PEP.
Your anti-money laundering and counter-terrorism financing (AML/CTF) policies must say how you will find PEPs and who gives senior manager approval. The steps are in our guide to enhanced due diligence for PEPs.
Can you rely on a PEP database or a self-declaration?
Not on their own. FATF says commercial PEP databases are neither required nor sufficient to meet Recommendation 12.
Self-declarations have the same limit. FATF warns firms not to rely solely on a customer saying whether they are a PEP, because many people do not know the definition.
AUSTRAC suggests combining methods, scaled to the size of your business:
- ask whether the customer, a family member or a close associate is a PEP, at onboarding and later
- check their background online, including sanctions lists, government lists and social media
- use a specialist PEP database from a third-party provider
If you use a provider, AUSTRAC says to check that it searches for the positions in the Act’s PEP definitions, and for other spellings and names. Our Screen workflow screens every party against PEP, sanctions and adverse media sources.
Keep records that show how you decided whether someone is a PEP. You must also take reasonable steps to spot a customer who becomes a PEP during the relationship, which is the job of our Monitor workflow.
Frequently asked questions
Does being a PEP mean someone is corrupt?
No. FATF calls the PEP rules preventive, not criminal, and AUSTRAC says PEPs are not automatically involved in unlawful activity. The role creates the risk, so you assess each customer case by case.
Does the FATF guidance apply to accountants and lawyers?
Yes, through Recommendation 22. It covers lawyers, notaries, other independent legal professionals and accountants when they prepare for or carry out set transactions, such as buying and selling real estate or managing client money.
What is the difference between source of funds and source of wealth?
AUSTRAC says source of funds is how the money for a specific transaction was obtained, such as salary or a property sale. It is not the bank account it came from. Source of wealth is where the customer’s entire wealth and assets come from.
Is the 2013 guidance still current?
It is still the PEP guidance paper FATF publishes. Recommendation 12 itself sits in the FATF Recommendations, which FATF last updated in October 2025.
Next steps
FATF sets the standard, but AUSTRAC sets the rule you are examined against, so build your PEP process to AUSTRAC’s guidance. Check it against our enhanced due diligence checklist.
StackGo’s IdentityCheck runs know your customer (KYC) and AML identity checks, including PEP and sanctions screening, inside the customer relationship management (CRM) or practice management software your team already uses. See how IdentityCheck supports AUSTRAC Tranche 2 compliance.
Sources
The facts on this page come from these sources, checked on 21 October 2026.
- FATF, Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013
- FATF, The FATF Recommendations (updated October 2025)
- FATF, Who we are
- AUSTRAC, Politically exposed persons (PEPs)
- AUSTRAC, Source of funds and source of wealth
- AUSTRAC, Anti-money laundering and counter terrorism laws cover thousands more businesses (1 July 2026)
- Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (ss 5, 32)