For financial institutions today, it’s more important than ever to ensure the security of your customers and transactions. One responsibility is ensuring that finances are legitimate and your business defends against money laundering. One of the essential AML methods is PEP screening, and every financial institution must have a thorough PEP screening process.
To ensure your system is effective at preventing financial crime and corruption, your company needs an in-depth understanding of the PEP screening process. Let’s take a deep dive into the PEP process, what it looks like for your company and the best practices for regulatory compliance.
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Before diving into the PEP process, you need to understand PEPs and what screening means. Without this information, your screening process won’t be informed, and this can lead to potential breaches and a weakened defence against financial crime.
A PEP is a Politically Exposed Person and is an individual who holds political influence or has a prominent public position. These figures are deemed higher risk of corruption and involvement in financial crime. Examples of PEPs include government officials, judges or senior judicial officers or board members of bank governors.
Family members and close friends of these individuals are also counted as PEPs due to their proximity to those in power. A PEP classification by no means implies guilt or corruption; it is simply an indicator that Enhanced Due Diligence checks are required to ensure the legitimacy of funds.
The process begins with collecting data during customer onboarding. This includes all the significant details about a customer, including:
Once all of this customer information is collected, it’s run through the global PEP database when the information is compared against a number of different known PEPs and watchlists. The most commonly used database and the one we use here at SmartSearch is the Dow Jones watchlist, which compiles thousands of global lists into a single source.
If a match is found, the system will flag the customer for further review, where further checks will take place.
Once your system has flagged a potential PEP, the next step is to verify this. Your internal compliance team or Money Laundering Reporting Officer will conduct manual checks to assess the level of risk. When assessments are conducted, institutions need to evaluate:
From these factors, a risk rating can be created and EDD carried out.
Enhanced Due Diligence is then conducted, where deeper investigations are used to determine the legitimacy of finances. This process involves:
Once the level of risk is determined, the next steps for reporting and escalation can be put into place.
If suspicious transactions are identified, the next step is to escalate this. This usually involves filing a Suspicious Activity Report to the relevant authorities. If money laundering or illegal activity is proven, an internal investigation may also be recommended alongside freezing funds to keep your company and associates protected.
PEP statuses can change at any point, and the screening process doesn’t stop after onboarding. This is why ongoing monitoring is used to continue to track transactions, and the process involves:
Continuous monitoring and awareness of changes in customer behaviour will help to keep your company on top of compliance and keep your business safe.
PEP screening is a crucial part of AML compliance and is a requirement for all financial institutions. Here are the main reasons that PEP screening is crucial:
Even with a sturdy PEP system in place, there are still challenges that your institution needs to overcome:
Now that you know how the PEP screening process works, it’s important to formulate a system that ensures maximum efficiency and effectiveness:
Tailor your approach to the highest risk customers and transactions. This will help save resources and ensure attention is directed where it matters most.
Investing in reliable and automated software like TripleCheck can help fill gaps from manual checks and speed up the compliance and verification process. These tools can verify identities from global databases and register multiple languages.
New AML laws are being brought into play each year, and keeping on top of rules and regulations is essential to ensuring your PEP and KYC processes are up to date.
With new processes comes the need to educate staff on any changes. Regular refresher sessions and new training for all staff need to be implemented to help teams recognise red flags and handle suspicious activity escalation.
Maintain detailed documentation, keeping accurate records of customer data, all screening results and risk assessments. Not only will this help with audits, but this data will be regularly reviewed for ongoing monitoring.
PEP screening isn’t just about ticking boxes to avoid penalties; it’s a crucial process that helps protect your organisation from financial and reputational harm. In order to create an effective PEP process, there needs to be a balance between strict control, customer checks and customer satisfaction. With our SmartSearch PEP and Sanction Screening technology, your checks will become effective and efficient for both your customers and compliance team.
To explore how we can help transform your Anti Money Laundering system, get in touch today or request a free demo of our software.