Ukraine on the threshold of a European approach to PEP regulation
The discussion around PEP (politically exposed persons) in Ukraine has long ceased to be a narrow topic of banking compliance. Today, it is a question of the quality of state regulation and the effectiveness of AML — the system of financial monitoring and combating money laundering. Ultimately, it is also a question of the maturity of the state.
How this regulatory logic works in practice can be seen through excessive financial monitoring of former high-ranking officials and their relatives. It can block ordinary transactions even after the end of the 12-month period from the moment of leaving public service. In the public discussion, this is described as a situation when the system began to “attack the organism itself”. This is a consequence of the approach when it is often safer for banks to leave a client “high-risk” than to later explain to the regulator why the risk was reduced.
That is why for the past six months, an intensive professional dialogue has been ongoing around the PEP topic – about irrational over-compliance with RER and the need for a real application of a risk-oriented approach. Discussions are being held with the banking community, the National Bank of Ukraine, the State Financial Monitoring Service, the Ministry of Finance, people’s deputies, international institutions and the expert community. And it seems that this dialogue is starting to bear fruit – the parliament plans to consider draft law No. 15111-d. It proposes changes that could potentially become one of the most important adjustments to Ukrainian PEP regulation after 2023.
The problem has never been in the PEP status itself
It is important to note the basic thing: PEP is not a Ukrainian invention and not a “repressive norm”. This is an approach enshrined in the European Union directives and FATF international standards, which are the basis of the anti-money laundering system. The logic is simple: people who hold or have held important public positions potentially have a higher corruption risk, so banks and other financial institutions are obliged to apply enhanced financial control to them.
In Ukraine, the problem arose not because of the PEP status itself, but as a result of the changes in 2023: the system began to work as if the former PEP automatically remained high-risk forever. Instead, financial institutions did not receive sufficient incentive to actually review the risk after the end of the public function. This is what caused derisking – banks began to refuse to work with clients with PEP status or persons related to them. In parallel, overcompliance – excessive, often irrational control measures regarding such clients – increased. Ukrainian practice turned out to be stricter than European practice – this is perhaps the main paradox of the current model. FATF and EU Directives do not require automatic lifelong enhanced financial monitoring measures for either PEPs or (even more so) for their family members. The European logic is different: at least 12 months after the end of the functions, then an assessment of the current risk. That is, there is a risk – there is control, there is no risk – there is no automatic enhanced regime.
What changes the bill 15111-d
The most important thing is to correctly understand the essence of the potential changes. First, they do not cancel control over politically exposed persons. Second, these changes do not remove enhanced verification and in-depth financial monitoring. And they are definitely not a “rollback” of the system for preventing money laundering and terrorist financing. On the contrary, the changes provided for by the bill No. 15111-d actually consolidate the approach that should have been in effect earlier: after 12 months from the moment of leaving the position, an individual assessment of the current risk should take place.
Key amendments proposed for voting:
After the 12 months, enhanced due diligence and in-depth financial monitoring may be continued only if there is a substantiated and documented high risk;
The mere fact of the former status of a politically exposed person can no longer be the only reason for continuing enhanced monitoring;
the subject of primary financial monitoring is obliged to justify in writing the reasons for continuing the enhanced due diligence;
the client receives the right to demand a review of such a decision.
And this is a very important conceptual shift. In fact, the system moves from formal automatism to a real reassessment of the current level of risk.
Why this is important not only for former officials
In fact, this discussion is much broader than the interests of PEP, because it is about the quality of public administration. When civil service is perceived as a lifelong compliance complication and a constant reputational risk for a person, their family, and business partners, this directly affects the willingness of strong professionals to work for the state. And this is no longer a question of financial monitoring, but of the effectiveness of state institutions.
Most importantly: this reform does not weaken AML
This is the main thing, so I will say it again. The proposed changes do not cancel the financial monitoring of PEPs, do not reduce control over their operations, and do not remove PEPs from the financial monitoring and anti-money laundering system. Bill 15111-d only returns the system to the logic laid down by FATF and European law – control should be targeted, proportionate and based on real risk. Because effective AML is not the maximum number of formal high-risk clients, but a system that focuses on real risks. And if the Verkhovna Rada supports the changes proposed by the bill, this may become one of the first examples of how Ukrainian regulation is moving from mechanical rigidity to a mature European model of a risk-oriented approach.
