What is a PEP? The definition is changing.
Australia's Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2026 significantly reforms how Politically Exposed Persons are defined and monitored, bringing Australia into closer alignment with FATF standards.
Understanding PEPs
A PEP is “someone who holds or has held a prominent public function” and receives enhanced AML/CTF scrutiny. Not everyone exposed to politics meets this definition. The concept was formalised by the Financial Action Task Force (FATF) in 2003 as the international standard-setting body for anti-money laundering and counter-terrorism financing.
FATF’s Three PEP Categories
Foreign PEPs hold prominent public functions in other countries and always require enhanced due diligence. Domestic PEPs hold positions within their own country and require risk-based assessment rather than automatic enhanced due diligence. International organisation PEPs are senior figures in entities like the United Nations, World Bank, and International Monetary Fund.
FATF recognises that family members and close associates of PEPs also present elevated risk, as “corrupt funds don’t always flow through the most publicly visible channels.”
Australia’s AML/CTF Amendment Act Reforms
Effective March 31, 2026, Australia’s reforms include:
Tighter Requirements
- Specific PEP definitions: The legislation now explicitly lists qualifying positions — members of legislatures, political party governing bodies, government department heads, local government council heads, and state-owned enterprise executives.
- Explicit family and associate definitions: Relationships are now codified in law, including business partners and trust beneficiaries.
- Former PEP approvals: Senior manager approval is now required to serve or continue relationships with former PEPs whose previous status affects their money laundering/terrorism financing risk.
- Enhanced source verification: Legislation now explicitly requires establishing source of funds and source of wealth for foreign PEPs and high-risk domestic PEPs.
- Mandatory ongoing monitoring: Organisations must take reasonable steps to monitor whether customers become PEPs during the relationship.
Simplified Provisions
- Flexible program structure: The mandatory Part A/Part B program split is eliminated in favour of outcomes-focused, risk-based approaches.
- Low-risk CDD pathway: Simplified customer due diligence is available when risks are genuinely low.
- Proportionate domestic PEP approach: Domestic PEPs only trigger enhanced due diligence when risks are assessed as high.
- Clear ECDD triggers: The reformed framework specifies exactly when enhanced due diligence applies.
Practical Considerations
The reforms require organisations to reassess their internal PEP definitions. Previously overlooked positions — such as local water authority CEOs or state-sponsored project finance directors — may now qualify as PEPs requiring different treatment.
Former PEP status remains subjective. An ex-prime minister maintains an elevated risk profile years after leaving office, while a former local official may present lower ongoing risk.
Conclusion
Australia’s 2026 reforms represent significant alignment with global FATF standards while introducing both stricter requirements and clearer pathways. The shift from prescriptive rules to outcomes-focused, risk-based compliance reflects evolving international best practices in combating financial crime.