Politically exposed persons, or PEPs, are individuals appointed to significant roles by government bodies, often within the past year. Given their potential harm and risk, Managing Politically Exposed Persons can pose complicated challenges for firms operating within the financial and legal sectors.

There are a number of categories where a politically exposed person may originate from, including ministers of all ranks, heads of government and state, members of parliament, ambassadors, high-ranking military officers, executives of state-owned enterprises, members of national courts and judicial bodies, as well as board members from central banks.

Additionally, family members, close business associates, and beneficial owners of PEPs’ properties also fall under this classification.

The Financial Action Task Force (FATF) categorises PEPs into foreign PEPs, domestic PEPs, and those holding prominent roles in state-owned enterprises and international organisations. A foreign PEP in one country is considered a domestic PEP in their own country. Financial businesses might identify a client as a PEP if they receive government funds, use official government stationery, or if public information suggests a connection to a PEP.

Managing Politically Exposed Persons: The Risks Associated with PEPs

Engaging with PEPs carries substantial risks for banks. The primary concern is the potential for laundering proceeds from bribery and corruption. These clients have access to public resources and significant influence over financial transactions, increasing the risk of:

– Laundering funds from bribery and embezzlement

– Engaging in financial crimes like wire fraud

– Concealing broader criminal activities such as extortion and theft

Due to these risks, financial businesses must be vigilant in identifying and investigating any suspicious activities involving PEPs to avoid exposure to economic crimes.

Challenges in PEP Screening

Screening PEPs presents several challenges for financial businesses aiming to maintain robust anti-money laundering (AML) processes:

– Customer Onboarding Delays: Enhanced due diligence (EDD) for PEPs can prolong customer onboarding, negatively impacting the customer experience. Controllers often deal with false positives, outdated data, and low-quality alerts, further complicating the process.

– Operational Hurdles: Effective enhanced due diligence requires integrating multiple data feeds, case management systems, and customer relationship management (CRM) systems. Without proper connections, workflows slow down, making it difficult to report suspicious activities promptly.

– Regulatory Inconsistencies: Different countries have varying regulations for PEP screening. For example, domestic PEP screening is not mandatory in the United States but is required in most other countries. Banks must navigate these discrepancies to ensure compliance across all branches.

Best Practices for Managing PEPs

To mitigate the risks associated with PEPs, banks can adopt several best practices:

– Establish Robust EDD Protocols: Apply enhanced due diligence protocols to all PEPs, their relatives, and close associates, especially those posing higher risks.

– Utilise High-Quality Data: Maintain a comprehensive PEP list synthesised from multiple data sources to accurately identify clients requiring PEP status.

– Augment Screening Processes: Regularly screen for adverse media coverage and negative news stories that might indicate hidden risks.

– Implement a Risk-Based Approach: Offer varying degrees of screening and due diligence based on the PEP’s risk level and jurisdiction. Continuously monitor their status to adapt to any changes.

– Invest in Training: Provide compliance officers with extensive training and education to analyse alerts and act on new information effectively. Improving workflow confidence and speed is crucial.

Advanced PEP Screening Solutions

To efficiently manage PEP screening and broader AML challenges, banks need intelligent automation and workflow solutions with the following key features:

– Access to Real-Time, Global Data: Use machine learning to monitor over 7000 structured data sources for PEPs, their relatives, and close associates.

– Structured Entity-Based Profiles: Automatically capture risk changes and process them through formal approval systems quickly and intuitively for compliance officers.

– Sophisticated Matching Technology: Identify typos and changes with configurable screening parameters based on the firm’s risk-based approach.

Due to the significant risks they pose, managing PEPs in the banking sector demands a higher degree of scrutiny. By adopting robust protocols, leveraging high-quality data, and investing in advanced screening solutions, banks can mitigate these risks while maintaining a positive customer experience.

How Verify 365 Helps Firms and Businesses Deal With PEPs

As noted above, technology is a viable solution for financial businesses as well as law firms when it comes to dealing with PEPs and sanctioned individuals. Verify 365 is the ultimate AML & KYC client onboarding platform, helping firms and financial businesses complete fast, enhanced verification checks to confirm an individual’s identity and current status, highlighting whether they are politically exposed, sanctioned in any capacity or facing adverse media.

Our advanced biometric and NFC technology confirms a person’s identity within a few minutes using facial recognition and liveness scanning. Our technology identifies over 10,000 legal documents from across 200 countries, and all our data is fully protected and stored in the UK and the report generated will then highlight an individual’s status. This highlight ensures you can take the necessary steps to mitigate risk and protect your business. You are able to identify an individual in moments, given that our technology has access to over 1,400 PEPs and Sanctions lists.

In addition to this, by identifying any PEPs, sanctions or adverse media, our technology enables you to complete both lite and enhanced checks on your clients, ensuring you are completing the necessary due diligence process. Our technology also monitors and notifies you if an individual’s status changes, meaning you can take the necessary steps if indeed, something changes. Our monitoring is over the course of a 12-month period, ensuring you are protected and enabling you to make informed decisions to protect your business.

Our technology ensures compliance and is the ultimate client onboarding platform to help you confirm an individual’s identity and status. Our effective technology ensures you can take all the necessary steps to complete both lite and enhanced checks, mitigate risk, and ultimately protect your firm or business from potential harm and sanction.