Let me start with a question.
With increased media focus and a raft of impending elections - are you confident you can effectively manage PEP risk?
The PEPs landscape is evolving at pace
The national and international Politically Exposed Persons (PEPs) landscape is about to get a lot more complex in 2024. War is raging in Europe and the Middle East, and several nations are set for elections that have the potential to fundamentally change the political landscape. With this in mind, banks and financial service providers (FIs) will continue to walk a tightrope when it comes to balancing the potential risks of dealing with PEPs, with protecting the right to banking services.
What’s more, they’ll be doing this under the ever-watchful eye of regulators with the power to dole out huge fines for those who get it wrong. To make things more complicated still, there’s currently no clear, globally agreed definition of exactly what a PEP is.
With so much to consider, FullCircl, along with our partners at ComplyAdvantage, put together a stellar panel of financial crime practitioners to tackle the issues at play head on. FullCircl Co-Founder and COO Justin Fitzpatrick was joined by Alia Mahmud, Global Regulatory Affairs Practice Leader at ComplyAdvantage, Jessica Cath, Head of Financial Crime at Thistle Initiatives, and Paul Dale, Senior Financial Crime Manager at Jeeves.
Here’s a summary of the key takeaways you need when considering the PEP challenge in 2024.
Why there isn’t a clear, globally agreed definition for PEPs?
FATF define a PEP as “an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery”.
Vague? Ambiguous? Open to interpretation?
Yes, to all of the above!
In the UK the FCA has stronger guidance on PEPs with clear examples of the challenges. But still, it’s tough to find a definition that works for all jurisdictions, types of public function, relatives and associates etc.
Some banks have therefore taken the decision to de-risk/de-bank PEPs. The panel agreed this is a mistake, not only from a regulatory compliance point of view, but also from a financial crime one.
The panel also agreed that banks need to adopt a risk-based approach when applying policies and procedures to PEPs.
Why is a risk-based approach the best way to quantify PEP risks?
A poll of the 400 participants of the live webinar found that:
Looking more closely, the level of nuance adopted is very much dependent on the maturity of the individual institution when it comes to data, technology, and processes.
Forming a risk-based approach can help banks and FIs link their PEP methodology back to their wider risk appetite and approach. This can only be achieved through a nuanced evaluation of the client, made possible by harnessing all available data points including individual and familial insights, customer intelligence/KYC, UBO and company structure, industry and jurisdictional knowledge, financial background, source of wealth, as well as relevant indexes.
Why is it difficult to balance customer experience and compliance?
It doesn’t have to be, concluded the panel. Dynamic onboarding should never come at the expense of a risk-based approach. It is possible to do both in unison with the right data up front, and the right people, process, and technology.
They also agreed that banks need to pull from as many resources as possible – customer data, third-party data, behavioural data, adverse media, and trigger-based dynamic questioning – and take all into account when reviewing PEPs to ensure they not only meet wider regulatory requirements, but also the bank/FI’s individual risk appetite.
Why is third-party data so important?
The second poll conducted during the webinar revealed that 7 out of 10 banks/FIs view financial crime compliance as one of, if not the, most concerning regulatory challenges they face right now.
The panel agreed that third-party data is vital to the successful identification and classification of PEPs, undertaking of risk assessments and customer due diligence, and ongoing monitoring of both individual PEPs and the evolving PEP landscape.
The panel also believe that if banks and FIs are going to successfully move from financial crime compliance to financial crime prevention, there needs to be more data sharing across the financial services industry.
The Economic Crime and Corporate Transparency Act is helping, but there is still a long way to go.
In the meantime, access to the right data and PEP screening tools will ensure banks and FIs do not just adopt a tick-box exercise, but are prepared for the challenges ahead and can scale up their response, including:
- Automated screening - Realtime global coverage to pre-screen for political exposure, sanctions, and adverse media to evaluate level of customer risk and ensure they are not involved in illegal or prohibited activities.
- Graph data visualisation – Recognise the connections between directors, shareholders, and group companies up to the Ultimate Beneficial Owner, and understand any risks associated with the people you do business with.
- Identity verification – verify identity in real-time with automated document verification and facial comparison technology.
- Perpetual KYC - Event-based alert notifications of changes to watchlists, financial and credit information
FullCircl can help you take on the PEPs challenge.
SmartOnboard from FullCircl is the industry’s comprehensive compliance platform, accelerating customer screening while enabling FIs to better manage risk throughout the customer lifecycle. Features include:
- Customer onboarding checks: Onboard business customers up to 94% faster with automated KYC, AML, and credit checks.
- Ongoing screening: Screen customers at any time to ensure information reflects current circumstances when reviewing customer products or internal risk appetite.
- PEPs, sanctions, and adverse media: Get access to PEPs, Sanctions and Adverse Media with categories aligned to the latest FATF recommendations and up to a 70% reduction in false positives.
- Ownership and UBOs: Understand company ownership structures and beneficial owners to help improve customer onboarding, reduce risk, and meet regulatory requirements.
- Credit & Risk: Assess a customer’s creditworthiness and financial health. FullCircl provide credit reports, credit scores, and other critical financial indicators to help you evaluate the customer’s credit worthiness quickly.
- Monitoring: Event-based alerts notify you of any changes in critical financial information held on the companies in your watchlist.
Watch the full webinar on demand here.
Then book a demo and find out how FullCircl can help you mange PEP risks smarter and spot financial crime faster.