Best Practices For Your PEP Screening Process
PEP screening is an important aspect of Anti-Money Laundering and Know Your Customer (KYC) regulation. It involves validating a customer's identity to determine if they are a PEP - a politically exposed person. While companies are of course not not prohibited from working with somebody on a PEP list, there are additional due diligence measures that are required.
Regulated businesses must develop a process to screen and monitor politically exposed persons, and this can be a difficult undertaking since there is not always a universally agreed-upon definition for what a PEP is. Nonetheless, organizations must have a process in place to complete these screenings!
Here are some of the best practices to help you improve your PEP screening process.
Focus on High-Quality Data
It is essential to focus on high-quality data when conducting PEP screenings. It is not uncommon for compliance officers to utilize Google searches and other ad-hoc methods to screen new customers during the onboarding process. Not only is this time consuming and costly, but it is also imprecise and can lead to inaccurate screenings.
Misspelled names and spelling variations due to language differences can make this job even harder, not to mention having to research any additional aliases that the customer may have. You can minimize these difficulties by investing in tools that provide high-quality data and allow you to search trusted sources for PEP lists.
Utilize a Risk-Based Approach
Although anyone who is a PEP can be vulnerable to corruption, you should not take a one-size-fits-all approach. PEPs should be evaluated along a risk spectrum - think about it this way, high ranking officials and heads of states have way more authority than a PEP that holds a low-level position.
In the same way, someone who is a foreign PEP would generally be considered to have a higher risk associated with them than a domestic PEP, since your organization may not be able to fully comprehend a foreigner's background and connections.
You should utilize this risk-based approach during your PEP screening process to determine which individuals require additional due diligence measures to be conducted. This will allow your compliance officers to maximize their time while still effectively gauging the risk of doing business with a specific individual.
Perform Supplemental Due Diligence Checks
As you can see, there is inherent ambiguity when it comes to screening PEPs and their close associates that may warrant additional due diligence verification. A helpful approach is to use supplemental due diligence checks like monitoring for adverse media or negative news so that you can better understand all of the risks associated with a PEP.
Monitor the Relationship Consistently
An important best practice in the PEP screening process is to monitor the relationship consistently - not just at a point in time during customer onboarding. The risk-based approach should be applied throughout the business relationship, as someone's status can change after opening an account.
Your processes should be able to ensure that you are using an appropriate level of due diligence for a specific customer's risk level – even if this risk-level changes over time. Rules and thresholds should be set based on the risk level assigned to a specific individual as to allow the appropriate transactional and behavioral monitoring.
This ongoing due diligence should be applied to your entire customer base, not just identified PEPs. remember that a customer may become a PEP at any time, or suddenly have adverse media reports during the business relationship.
The same goes for the risk level changing in the other direction. It is generally safe to assume that once someone is a PEP that they will remain one, but their level of risk will not always stay the same once they leave their post. Best practices include having a process to declassify them into a lower risk level when appropriate so that the necessary due diligence measures are being taken.
Provide Appropriate Training
Providing your employees with appropriate training on any tools and technology needed to complete PEP screenings is essential. Although automated solutions that rely on high-quality information are a great way to reduce administrative burden and improve efficiency, there are always going to be compliance officers required to clear alerts and act on the information that was provided.
This means that preventing fraud, money laundering, and counter-terrorism financing is just as reliant on your employees' abilities as it is on the technology behind the PEP screening process. All relevant personnel should be properly trained, with periodic updates on training, so they are well-versed on internal processes, relevant regulations, and risk categories.
Not only should this training include how to carry out the PEP screening process correctly, but it should also include reviews of scenarios so that they understand how to handle those instances in the future.
For example, scenario-based training can demonstrate the appropriate steps required when someone who is not a PEP becomes one, or vice versa. You should also include instances where your organization finds adverse media reports or other information that would cause you to adjust a PEP's risk level.
Proper training is one of the best ways to ensure that your PEP screening process is effective and well-maintained!
To summarize, the best practices for your PEP screening process involves focusing on high-quality data and utilizing a risk-based approach so that your compliance officers can do their jobs efficiently and effectively. Actively supplement your PEP screenings with other available information like adverse media reports so that you can completely understand the context and risk associated with doing business with someone. You should be monitoring relationships on an ongoing basis, not just during the onboarding process - and all relevant staff should receive consistent training and instructions on how to perform PEP screenings appropriately.
