In September 2023, the FCA issued guidance pertaining to the treatment of Politically Exposed Persons (PEPs). Regulated businesses may need to reexamine their PEPs screening programs in response to this, or simply to ensure PEPs screening is effective and efficient.
Moody’s Analytics has outlined its guidance for effective PEPs screening.
There is no single, globally accepted definition for PEPs, however FATF’s guidance is most widely adopted: “A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function.” Screen new and existing customers and third-party relationships against a database that monitors changing PEP status according to this definition and understand where PEPs exist across your business network.
Only a small proportion of PEPs and their associates i.e., close business partners or family members, will ever be involved in financial crime. However, as PEP status brings with it an elevated risk of being involved in bribery and corruption, we recommend automated screening for PEPs and PEPs by association to identify them immediately, so enhanced due diligence can begin. Automate a process to establish an accurate risk rating, enabling you to evidence decisions made about PEPs and PEPs by association.
Once PEPs have been identified they should be subject to enhanced due diligence to properly assess risk and decide on any subsequent action. To establish this picture of risk, we recommend automated risk rating using this criteria:
Once the PEP or PEP by association’s risk rating has been created, you can plan how and when to monitor ongoing risk. This could be using period reviews at one-, three-, and five-year intervals, or it could be through a process of perpetual KYC.
FATF is clear that PEPs should not be denied services due solely to their status, and the FCA established that it had found no evidence banks were rejecting or de-banking PEPs inappropriately. This underscores the importance of making risk-based decisions that are tracked and auditable. Using an appropriate and proportionate risk assessment criteria [described above] during PEP screening can support decisions to reject or off-board high-risk PEPs who sit outside your institutions’ risk appetite. Use a solution that tracks data checks, assembles risk profiles, and maintains a history of decisions.
Choose accurate, curated, global data sources that provide a comprehensive picture of risk related to PEPs or PEPs by association. This enables institutions to be transparent throughout enhanced due diligence and during ongoing reviews. Then customers and third parties can be aware and can participate in the screening process as necessary. Firms can also communicate outcomes to PEPs in a timely and appropriate way, including instances in which a PEP is rejected - using appropriate evidence to support decisions.
Monitoring PEP risk should be dynamic, as PEP status can change often and quickly. As well as reviewing your current PEP screening program, we recommend a process of perpetual KYC (pKYC). pKYC ensures that when a new PEP is identified within your business network, this is flagged for enhanced due diligence immediately, and it removes the need for periodic reviews. With a flexible solution, it’s also possible to update risk management and control measures whenever needed, for example in response to new or changing sanctions packages. Integrated data checks in an automated workflow of checks that can be configured and re-configured when needed offer appropriate control over PEPs’ risk management.
Moody’s Analytics KYC enables financial institutions to understand where PEPs exist within their business network and to make decisions with confidence about PEPs, having a full picture of risk, which is created appropriately and proportionally using trusted, accurate global data sources.
Our customers build their own risk management and compliance workflow to screen risk, integrated with our data that holds information on more than 2.7 million PEPs worldwide.
Please get in touch if you would like to begin a review of your PEP screening program, or for more information, please visit: www.moodys.com/kyc/peps