The Complexities of Politically Exposed Persons
Jinfo Blog

By Tom Brown

Abstract

How to know, understand and identify a Politically Exposed Person (PEP), manage the firm's risk expectations and have a better perspective of how the PEP's funds are generated and where they originate is a complex process, littered with pitfalls. Anti-Money Laundering (AML) and Know Your Customer (KYC) specialist Tom Brown highlights some of the key challenges for compliance professionals.

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PEPs (Politically Exposed Persons) are an breed of clientele that on the one hand are a bankers dream when it comes to meeting targets but could very well end up being the banker’s nightmare if care is not taken. That duty of care is not only owed towards the PEP client but also towards regulatory requirements which expect a standard of due diligence performed against the suspected PEP client. That duty of care runs not only through the onboarding stages but through continuous monitoring techniques in order to know, understand and identify the PEP, manage risk expectations and have a better perspective on how the PEP’s funds are generated and where they originate.

To understand this, one needs to start from the beginning – and this requires a firm grasp of the meaning of and complications surrounding the definition of a PEP. Currently, there is no single universally accepted definition of a PEP and this causes problems not only for the financial institutions trying to do the right thing in accordance with their Anti-Money Laundering (AML) and regulatory compliance requirements but also for the vendors and third party providers whose tools, systems and controls are used by the multitudes of financial and non-financial services operators.

Reliance on third party tools which don’t get the right triggers, definition and understanding of a firm's policy or their “risk appetite and risk tolerance” levels could spell disaster when it comes to identifying and risk ranking PEPs. The article Understanding Politically Exposed Persons and their Associated Risks looks into this simple yet confusing dilemma. It proffers a breakdown of potential risk monitoring techniques that need to be in place to minimise risk and maximise the efforts and understanding of a compliance unit within any financial and non-financial institution willing to do the right thing.

FreePint Subscribers can log in now to read more about the myth and confusion surrounding PEPs, who they are, how they are defined, what risks they pose and how such risks can be understood, identified, classified and managed. Understanding Politically Exposed Persons and their Associated Risks identifies five key areas which will help compliance and AML staff to identify who their PEP clients really are and whether the source of their wealth is genuine.  

Editor's Note: Compliance in Context

This article is part of the FreePint Topic Series: Compliance in Context, which ran from September to October 2013. You can still register your interest to receive a free copy of the FreePint Report: Buyer's Guide on Regulatory Compliance published in October.

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