In the financial regulation industry, PEP stands for politically exposed person. It’s crucial for financial institutions to adhere to financial PEP regulations to prevent money laundering and terrorism financing. Read on to learn what a PEP is, how to screen for PEPs, and who qualifies as a PEP in anti money laundering (AML) and combating the financing of terrorism (CFT).
To put it simply, a PEP is anyone who may be more susceptible to bribery, intimidation or corruption because of their importance, power or influence. The criteria for what defines a PEP is broad, but most financial regulation professionals worldwide define PEP using the definition from the Financial Action Task Force on Money Laundering (FATF), which divides PEPs into a few different categories that we will describe below.
The first category is foreign PEPs. These include anyone trusted with important public duties by a foreign country.
The second type of PEP is domestic PEPs. As you may have guessed, domestic PEPs are similar to foreign PEPs and are trusted with important public duties by their domestic country.
The third type of PEP is broader and includes anyone trusted with important duties by state-owned enterprises or international organizations. Even members of international sports organizations are considered PEPs.
To make things even trickier, immediate family members, including in-laws, and publicly known associates to the aforementioned people also qualify as PEPs.
Doing business with customers on PEP lists and not complying with PEP regulations can put your financial institution at higher risk of reputational damage or fines. That’s not to say you shouldn’t transact with these customers, but it’s important to take extra precautions when doing so to prevent financial crimes.
PEP screening helps your institution be aware of high-risk and PEP customers so you may perform adequate customer due diligence. These screenings are a crucial part of KYC and AML compliance. Read more about KYC/AML compliance here.
PEP screening requirements can be met by using an advanced screening software like RDC’s PEP database, which includes more than 1.7 million PEP profiles. Our software can help you determine a more precise level of risk for PEPs and their associates with our extensive database and smart categorization.
A comprehensive PEP database to screen against is one of the most important steps in identifying politically exposed persons. Our database consists of comprehensive records of senior officeholders, military officials, judicial figures, state-controlled enterprise directors, regional and municipal officials, legislators, and senior political party officials, as well as family members and close associates.
And remember, the work isn’t over once your institution identifies a PEP customer. It’s important to comply with KYC/AML best practices and continue to perform ongoing monitoring for PEPs.