There is an essential role for financial institutions and major firms in the fight against terrorist funding and money laundering. An integral part of this procedure is the identification and evaluation of politically exposed people (PEPs), who are either directly or indirectly associated with high-profile public figures.
Because of their prominence and influence, PEPs pose a greater threat to financial crimes such as bribery and corruption. Companies and financial institutions who are subject to AML requirements are, therefore required to conduct PEP screening as part of their overall risk management plan.
To help companies enhance their screening process, guarantee compliance, and keep the financial ecosystem secure and sustainable, this article will examine the importance of PEP screening in more detail.
What is a PEP (Politically Exposed Person)?
People in high-profile public positions or with strong relationships with those in power are known as Politically Exposed People (PEPs), and they are especially susceptible to financial crimes, including corruption and money laundering. A “politically exposed person” (PEP) is someone who is known to have ties to or works in the financial sector.
Now that we know what a PEP is let’s examine some instances of people who fit this description. Some examples of the kinds of people that may be deemed PEPs are:
High-Ranking Politicians & Govt Officials
Included in the category of domestic PEPs are heads of state or government, high-ranking politicians and government officials, members of the judiciary or the military, top executives of state-owned companies, and influential members of political parties.Foreign Individuals
Individuals from outside the country who are considered PEPs include key political party figures, heads of state or government, high-ranking politicians, government officials, judges, or military officers, and senior executives of state-owned businesses.Internationally Prominent Entities
People of European descent with an international profile are those who have positions of prominence within international organizations like the UN or the WHO.
These are only a few instances of PEPs; others include members of the prominent public’s immediate family and close colleagues. To avoid financial crimes and keep the financial system stable, businesses and financial institutions should include PEP checks into their risk management plans.
PEP Screening: What Is It?
To find out whether a candidate is on any watchlists, a PEP screening, also called a PEP check, is necessary. This sort of check is often necessary to comply with requirements on anti-money laundering and Know Your Customer (KYC) and is often part of the customer due diligence (CDD) procedure. The end purpose of PEP screening is to use a risk-based strategy to assess the candidate’s potential danger to the company.
Why Are PEP Screenings Necessary?
To safeguard themselves from financial crimes and guarantee compliance with AML requirements, institutions must do PEP screening. Prominent public figures or those with strong ties to powerful people are known as PEPs, and they are more likely to engage in corrupt practices and financial crimes including money laundering. These persons may be identified and possible financial crimes can be prevented by organizations who implement PEP screening.
Risking regulatory penalties and reputational harm, corporations engage in transactions with persons on PEP lists. A comprehensive risk assessment is necessary for organizations to comprehend the dangers of PEPs. Organizations are required to include PEP screening into their compliance processes, even if this form of risk assessment may not be part of regular operations.
To safeguard enterprises from financial crime threats and guarantee regulatory compliance, PEP screening is an essential step. An organization’s credibility and financial stability may be preserved, and penalties may be avoided by comprehensive risk assessments and PEP checks.
Why Should Businesses Do PEP Screening?
The major entities that need to do PEP screenings are financial institutions, including banks and credit unions. Screening for PEPs is obligatory for these institutions due to AML and KYC laws. Nonetheless, banks aren’t the only entities on the roster. It is imperative that all sectors that are obligated to adhere to anti-money laundering and know-your-customer requirements do PEP screenings.
Serious repercussions, such as sanctions list placement and heavy penalties from OFAC, might result from disregarding PEP screenings. That is why it is crucial to screen new customers for PEP as part of the onboarding process and to test current clients on a regular basis.
To prevent financial institutions and other organizations from engaging in illicit activities like money laundering or terrorism financing, PEP screens are an essential part of KYC compliance. Organizations may discover customers that pose a high risk and give them a risk rating via PEP screening. Then, they can take the necessary steps to reduce that risk.
Conclusion
A screening system that can automate and speed up compliance processes is used by many enterprises to simplify the PEP screening process. By doing so, organizations can save time and energy that would otherwise be needed to manually check PEPs against different databases.
Throughout the client’s lifetime, the system should defend against reputational risk while seamlessly monitoring PEP data. Screening and monitoring for PEPs, sanctions, and unfavorable media are essential to providing real-time findings with fewer false positives. In addition to enhancing the onboarding process for new customers, this kind of technology may assist firms in meeting PEP screening requirements and other applicable legislation.