Have you ever thought about how your organization can survive under the rules of dealing with politically exposed persons (PEPs)? The regulations for PEP screening can be complex, but adequate checks must be conducted frequently to minimize danger. As one compliance expert said, “If the client is a politically exposed persons (PEP), it’s important to identify this status before they invest with your firm. You never know when you might need to terminate the relationship.”
Regulations regarding PEP have been established to fight against money laundering and corruption. PEPs include persons currently or previously occupying political posts in the government or international enterprises, as well as their relatives. PEPs may exploit public power for private utilization, implying corruption. This is why it is essential to know who a PEP is, and accounts or transactions have to be watched closely by financial institutions. One of the ways of meeting compliance and managing PEP status to avoid giving your organization a hard time or being penalized is by routinely doing the PEP status check.
Understand PEP Regulations
Financial institutions need to comprehend various regulations on PEPs. Regulations require conducting PEP status checks and subjecting them to higher scrutiny. Prescribed rules specify the frequency of screening PEP data and the measures that have to be implemented for the identification of PEP.
When it comes to the PEP screening process and check, it is advantageous for an organization to update itself on the existing requirements. As of 2023, the FATF brought changes to the standardizing of international standards on AML and CFT. PEP screenings in engineered environments require more scrutiny, and Institutions must conduct them more frequently. These new rules also enhance the transparency of beneficial ownership.
Bonus: Contact us to learn how PEP screening advanced technology options can help you decrease the time spent on your screening process and enhance compliance.
Create a PEP Screening Policy
For PEP checks and screening to be conducted, a PEP status screening policy must be established. This policy must take everybody within the PEP identification process to the subsequent checks.
- Which PEP data will it include?
- When will the status changes be reviewed?
- Which function is bound to manage the PEP lifecycle?
Establishing a well-defined PEP screening policy matters greatly as this guarantees compliance across business units. An industry report published in the past few weeks notes that the adoption of automated PEP screening solutions cuts compliance costs by up to 30%.
Choose a PEP Screening Solution
There is a need to select appropriate PEP identification and screening when performing PEP status checks and screening. An effective solution will be most capable of collecting PEP data, tracking status changes, and issuing notifications about the matches during the checks.
There’s a need to look for a system capable of complementing current compliance processes while rapidly scanning long lists of clients. An automated solution is safer for the organization and is more time-efficient than physically conducting PEP checks. A 2024 report indicates optimization of PEP screening using automation leads to a 30 % decline in false positives and a 40% enhancement in compliance efficiency.
Perform Periodic Database Checks
Surveillance of the database is a fundamental activity among PEP status checks and the general compliance process. Firms are required to prospectively scan necessary databases to effectively survey the proper clients and look for possible new ones. Set a defined schedule for running checks, such as:
- Conducted each daily database for the high-risk transactions, which will alert in the event of the emergence of some difficulties.
- The full client screening is done once a week to identify new additions to the PEP list.
- Compliance scans on all clients on a monthly basis to extend coverage.
Review High-Risk Transactions
During the PEP screening, high-risk transactions are examined on a regular basis, depending on the PEP identification process. Big transactions, complicated processes, or those that cross limits provide more information and ensure no money laundering because every single transaction will be cross-checked with a public report.
This is the reason documenting reviews becomes an important part of the PEP status check file to meet compliance needs. Scrutinise transactions against the most updated international sanctions lists and databases. Global enforcement actions against PEPs have risen more than 15% over the past year.
Document PEP Status Checks
Documentation of all the PEP screening and status checks must be kept in order to establish an audit trail. Document activity from database scans and transaction reviews, as well as other diligence activities. Make records on the check date performed, any PEP matches identified, and the result of the accounts review, if any. Documentation serves as the main framework of the PEP lifecycle management process and also demonstrates to regulators that certain control tests are effectively performed. Regarding record-keeping compliance, reporting statistics pertaining to PEP matches and risk rating must be updated to improve compliance.
Ensure Continuous Compliance
Engage in compliance with the regulation of PEP audits and avoid repudiation perpetually. Companies must try to automate the screening processes. PEP regulations are well understood by the organization and across all of its business lines. Status check policies they adopt should update the policy whenever changes are required.
The best way to maintain compliance is through staff training so that compliance becomes business as usual. Substantiated material demonstrates that it is possible for PEP screening to be integrated as a continuous compliance workflow that addresses risk in the organization. The contemporary audit evidence reveals that organizations with automated and integrated compliance mechanisms enjoy a penalty and regulatory risk discount of 35%.
Our compliance experts can also offer compliance advice tailored to your institution. Contact us to find out how we can assist you with PEP screening consulting services.
Visit Trendblogs for more informative blogs.
