Recently, PEP screening has garnered attention of organizations like banks across the world. PEPS (politically exposed persons) pose a high level of potential risk to the banks or financial units. The possibility of corruption and money laundering make PEP screening mandatory. In today’s financial landscape, PEP screening has become an indispensable strategy to combat the challenges of various financial crimes.
PEP in KYC!!!
PEP in KYC is important to mitigate the increasing risk of corruption or financial crimes. PEPS are individuals who possess great public positions and are closely associated with those like politicians. These positions include individuals with high power who can influence the decision-making of ordinary people. Other government officials, like the head of state, senior government official, and senior judiciary member, also come under the list of PEP people.
PEP screening is crucial for KYC screening and AML screening portals because these people are at higher risk of being involved in things like corruption, terrorism or other illicit financial activity.
Significance of PEP!!!
Corruption is a significant problem in society today. The cost of corruption has been estimated to be at least $2.0 trillion which is approximately 5% of the global GDP so, you can see how widespread corruption is.
Moreover, businesses and individuals pay more than $1 trillion in bribes each year, so it is important to tackle the issue as soon as possible for the overall development and economic growth of the world.
This is when PEP screening is essential to decrease the level of risk and has become mandatory for many countries, as the law suggests. According to Section 312 of the USA Patriot Act, an enhanced due diligence process is required to monitor the financial activities of PEPS.
This makes PEP screening an essential element of customer due diligence or KYC screening, which helps financial institutions identify PEPs, manage risks, and ensure everything is operated in regulatory compliance. Even KYC screening software has a different column to track PEPS transactions, so corruption or other illicit financial activities can be stopped.
How to do PEP screening?
Financial institutions are required to conduct PEP screenings to mitigate the risk of money laundering. Old witnesses must follow all the guidelines in AML and KYC protocols. The key stages of PEP screening are as follows:
• Identify a new customer
First, it identifies the new PEP individuals who are at high risk with high valued transactions. To do this, financial institutions have to collect all the important data of individuals, such as the full name, birth date, gender, or any political exposure role that one might have now or in the past.
• Risk assessment
Once a PEP is identified, it is essential to conduct a due diligence procedure that includes risk assessment, PEP due diligence, business type, geography, and so on. By considering all the risk factors, organizations can establish an appropriate level of monitoring for PEP to maintain compliance.
The next stage of the process is approval, which finalizes the identified risks so an action can be taken against money laundering.
