What is PEP Identification and How Does it Fit into the PEP Screening Process?

One compliance expert said, "PEP screening is one of the most important processes a bank can undertake to mitigate risks associated with money laundering, bribery, and corruption." This article will discuss the PEP identification and fitness in the PEP screening process.

The identification of PEP

This puts more emphasis on the need for institutions in the banking industry to be properly acquainted with their customers. The discovery of a PEP is a highly significant process in PEP screening. All clients of a financial institution are critically researched to find out if they qualify as a PEP. This upfront capability to make a proper identification is an integral part of the PEP status check. The overall PEP Screening Process is due to the great risks these PEPs can carry. By the year 2024, globally, the data identifies more than half a million individuals as PEPs, with a 10% increase from the previous year.

Manual Versus Automated PEP Screening

For many years, the screening process under PEP had strong roots in the manual review of each client file. Given the huge number of clients, most financial institutions these days use automated screening tools as an integral part of their overall PEP identification and status check. This will help in the continuous monitoring of clients against data sources of PEPs for prompt alerts and notices to compliance teams about any high-risk person. Recent developments increase the AI-powered screening efficiency by 35%.

Ascertainment of the PEP status of the customer

Where the screening of PEPs identifies a potential client through an initial PEP screening process, further review of PEP data is required. The ultimate verification in terms of officially categorizing that person's status with the low, medium, or high risk associated with politically exposed person roles. Financial firms must clearly establish the risk classification of a new client in a manner that will determine what level of ongoing monitoring would fit their PEP identification. This ensures regulations are followed according to the firm's PEP Screening Process.

Establish If a client is PEP

In the screening process for PEPs, all information available from a newly identified potential customer has to be carefully scrutinized by a financial institution in order for their risk level to be categorized. This would include their Politically Exposed Person profile, stating what position this person held, and any other useful information that may have an impact on their risks of being corrupted. In 2024, this has been enhanced to require firms to refresh their PEP classifications every six months.

Perform ongoing PEP screening

Financial regulations require that firms perform continuous PEP Screening on all existing clients as well. Continuously monitor the PEP data sources for changes to a Politically Exposed Person profile or risk classification. Automated screening tools facilitate the recurring PEP check, as they are continuously monitoring existing clients who may take on higher-risk roles. This requires appropriate adjustments to their level of monitoring.

PEP match escalation procedures

There can only be a PEP Screening Process with defined measures for administering the potential PEP matches. If a client's information happens to correspond with the incoming PEP information, there are summarized measures that have to be taken. The possible game is first passed through a manual process for confirmation of identity before the status and risk level of a PEP is reviewed. Statistics show that 15% of manual reviews resulted in updated risk classifications last year. This highlights the dynamic nature of PEP profiles."

Benefits of robust PEP screening processes

• Regular PEP Checks and ongoing reviews of PEP data help ensure a firm remains compliant with regulators' expectations for monitoring potential PEP lifecycle.

• This will facilitate more effective and faster monitoring of the PEP status of clients using updated PEP data sources. It also allows the identification of changes that will have a bearing on the risk classification.

• Thorough initial and ongoing identification of PEPs puts a company in a position to do its Know-Your-Customer and determine they are connected to Politically Exposed Persons in ways that carry unexpectedly large exposure.

• Further reassurance is provided by the clear escalation and protocols under the PEP screening, which assures the compliance team that matches found through the PEP check since the team is duly considered to continue the prevention of possible implications by high-risk persons.

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