Have you ever thought about why banks and financial firms focus on finding PEPs? I will always pay extra to understand how to get along with people, according to John D. Rockefeller, who also stated that being able to recognize PEPs is as essential as purchasing coffee or sugar.
Finding PEPs properly is very important for financial companies when working with all their customers, especially the ones at a higher risk of doing something wrong.
Many regulatory requirements require financial institutions, such as banking and investment houses, to identify who their customers are politically exposed to.
Therefore, influential people within the government will not be able to abuse their influence for criminality in respect of money laundering or corruption.
When a bank fails to identify a PEP customer, it will incur harsh penalties and loss of goodwill. This article discusses why a good process of Identifying PEPs is of prime significance to financial organizations in order to carry on trading profitably.
PEP Compliance regulations
Many government laws and regulations require a financial institution to identify PEPs or politically exposed persons.
Non-compliance with the PEP compliance laws can stir up a whole lot of trouble in and around banks, asset managers, and other institutions of finance.
It is essential to use PEP screening solutions as they can identify data from databases and adequately assess the risks involved. This ensures firms remain within regulations when dealing with high-level clients.
As of 2024, regulatory fines with regard to non-compliance with PEPs have been multiplied heavily and amount to $10m in severe cases.
Bonus: Our trusted PEP risk assessment identifies all political clients correctly. See how we ensure full monitoring of high-risk connections.
Risks of not identifying PEPs
In case a bank fails to adopt a PEP screening process, it risks exposure. Some of the risks include losing money through penalties in case the regulators discover that the bank failed to identify a PEP.
Another risk is reputational damage because a major client may turn out to be a PEP the bank did not find.
Clients and the public may lose confidence in such a financial institution that fails to scan for PEP links to politicians. Companies need to invest in PEP scanning solutions to shun risks.
In 2023, fines due to failure to comply with PEP screening regulations hit record levels, as some penalties were above $100 million.
Use PEP screening solutions.
An appropriate PEP screening solution will enable financial firms to comply with regulations. It will scan through PEP databases that have international names and positions.
A good solution will ensure any risks associated with PEP clients. This will prevent the company from risks in the long run.
Proper identification of PEP is essential to finances, and firms need a reliable screening to ensure appropriate business management.
In 2023, more than 250,000 new PEPs were introduced globally, and an up-to-date screening solution was essential.
Benefits of the PEP scanning process
Financial institutions must scan a PEP checking process to find influential customers.It also analyzes the risks of PEP association.
- This saves the business from problems. A perfect check procedure makes companies realize that their clientele is clean.
- This procedure helps companies avoid money laundering fines or other severe problems. The identification of PEPs from a proper perspective delivers various benefits for financial activity.
- Non-compliance with PEP screening rules may cost the financial institutions fines up to $10 million.
Verify PEP client information.
Financial organizations must effectively verify every kind of information provided by potential PEP customers.
The checking process must include verification of identification documents and background information.
Names and titles of the clients must match real PEP information. Incorrect customer information poses many later risks and opportunities.
Stringent checking protects the organization and ensures that it complies with all relevant rules when helping all customers.
For this reason, financial institutions should also use high-class technology to cross-check PEP data as well. Enhanced due diligence might account for as much as 20% of a company’s compliance expense.
Protect the financial business reputation.
Failure to identify PEPs leaves open the possibility of damage in the event that those clients become embroiled in scandals.
Identification of PEPs by regular scanning of lists protects political links from damaging the brand. It demonstrates that all patrons are served with equal care.
The PEP screening protects reputation by preventing risks that could damage the trust put in the business. Clients will be confident that their funds are safe.
The latest research reveals that over 60% of financial institutions now scan for PEPs every business day to avoid reputational harm from upcoming scandals.
Stay compliant with PEP regulations.
Policies surrounding PEPs change with politics. If banks want to adhere to the law, they must cross-reference the identities of their clients with PEP lists.
The sole strict compliance will be to ensure that they do not face fines or warnings from the regulatory agencies for political customers.
Observance of PEP laws also guarantees that the public is assured that the company operates with integrity. The correct screening is essential to maintain smoothness in the long run.
In 2023, international fines against non-compliance with the PEP screening requirements totaled over $5 billion, and it is important to keep on closely following the rapidly changing rules.
Stay up to date with regulations by regularly checking client details with our solutions for your PEP processes.