Putting the Pep Back into PEP Compliance
In our latest chat series, ‘Spilling Tea with Compliance’, Payoneer’s Deputy Chief Compliance Officer, Micheal Sheehy sat down with industry experts, Karla Worley, VP Business Development at RDC along with Hugo Veazey, Director of Anti-Financial Crimes at RDC to discuss how payment and financial institutions can use PEP compliance to mitigate financial risks and crimes.
Here we’ll cover what exactly a PEP is in terms of compliance and the challenges that financial and payment institutions currency face when handling them.
Watch the full episode below!
What is a PEP?
According to the global financial regulator FATF (Financial Action Task Force), a PEP or a Politically Exposed Person is one who is or has been entrusted with a public office or function. Many payment organizations and financial services companies implement PEP compliance in order to protect themselves from money laundering or terrorist financing and monitor their clients.
The types of measures taken by a financial services company include due diligence of clients, transaction monitoring as well as building risk profiles of clients who may be conducting financial crimes.
As Fintechs tend to want to onboard customers as quickly and smoothly as possible with a minimum amount of friction, it’s important to know how to identify the risks of those customers who could possibly pose a threat. Below we dive deeper into the challenges that many financial institutions face with PEP compliance.
The Challenges Faced by Financial Industries with PEPs
It’s extremely important that financial institutions understand how to handle PEPs and how to define the risks involved. Once a business has identified a risk with a client, it’s the important to understand it as many people in the industry are struggling to understand just how big of an issue that risk is. Oftentimes, PEPs are not handled correctly and are given the benefit of the doubt or are not take seriously enough. Financial institutions need to keep in mind two key elements: trust and prominence. Has somebody doing what they have been asked to do? Prominence to one person may be very different to another person, so where do they draw that line?
Furthermore, it’s really critical that financial institutions know how to effectively elevate and identity the risk in terms of bribery, corruption, terrorism and more. Engaging with friends or family members of the PEP is also a strategy in uncovering a risk.
Institutions should also keep in mind something very crucial; a PEP knows that they’re a PEP and they realize pretty early on that they’re under some sort of scrutiny from the institution, especially when asked to submit additional documents and materials. Keep track of their transactions and activity and make sure that you’re doing everything possible to mitigate a financial crime.
The Future of PEP Compliance
For the long run, it’s not enough to just rely on asking the customer is they’re a PEP or not and using that answer to take action. Going forward, businesses and institutions are going to need to take a much smarter and more efficient approach to screening customers who may be classified as PEPs. Detecting a PEP will need to happen quickly and more scrutiny will need to be implemented. Finally, there will also need to be some sort of explanation involved when a business decides to continue working with a client or when there’s a decision to let go of a client that’s classified as a PEP.
Over the next few years, the world of PEP compliance may experience many changes, but the challenge of identifying a customer who’s posing a risk is something that still needs work.