Why it is imperative to identify PEPs

In an age of heightening tension where sanctions are being imposed globally, being able to decode and identify politically exposed persons is becoming more and more vital.

According to the Law Society, a politically exposed person (PEP) is someone who’s been appointed by a community institution, an international body or a state to a high-profile position within the last 12 months.

In a recent post, RegTech firm PassFort examined what makes someone politically exposed and why it is significant when they are identified as a PEP.

The company remarked, “Before give a PEP access to financial products it is important to identify them and to understand what makes them politically exposed. This informs their risk profile. It’s not to deny them access to financial products or services, but to ensure risk-based decisions can be made about onboarding and risk monitoring.”

Financial institutions often run checks for PEPs as part of their AML and KYC due diligence compliance processes. These checks, PassFort claims, are done before onboarding and at regular intervals throughout the customer lifecycle – not due to PEPs being untrustworthy, but because it can make them a higher risk when it comes to bribery and corruption.

Furthermore, PassFort highlighted it is also possible to be a PEP ‘by association’. These people could be married, related or connected to a PEP. Financial institution’s may check for PEPs by association before onboarding.

Most countries have their own criteria for defining a PEP – therefore, there is one definitive list of PEPs globally due to there being a ‘spectrum of interpretation’ about what constitutes being politically exposed.

PassFort said, “There are plenty of reasons why financial institutions want and need to identify the PEPs in their network. They might be part of a sanctioned regime for example. The main reason is that they can be a target for bribery and corruption due to their position of power and influence.

“Identifying a PEP before they are offered a financial product helps banks and other providers make better risk-based decisions about how to proceed with the customer. For example, following AML and KYC checks, a PEP might be onboarded and regularly monitored, or they might be off-boarded because they are considered too high a risk.

“When it comes to a PEP, it is important that financial services companies – even those with a high tolerance for risk – complete their due diligence. Not to deny access to products unfairly but to ensure they aren’t inadvertently supporting financial crime.”

Find the full post here.

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