A Politically Exposed Person or PEP is an individual who holds a prominent public position. PEPs can include government officials, military officers, judges, senior sporting officials, and high-ranking executives of state-owned enterprises.
Due to their positions of power and influence, because of the key decisions they may make, and their access to financial resources, PEPs can be a target for bribery and corruption. This elevated level of risk needs to be considered as part of your KYC process.
Identifying PEPs is essential for compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) laws. Most jurisdictions require that PEPs are subject to enhanced due diligence (EDD) and ongoing monitoring. Moody's solutions help you identify PEPs in your network, complete efficient EDD, and monitor ongoing risk.
Get everything you need to know about PEPs and automated PEP screening to manage risk and AML/CTF compliance.
Orchestrate digital onboarding and perpetual risk monitoring for PEPs anywhere in the world via one platform. Create your workflow of automated data checks to verify and screen individuals and entities. Integrate risk-relevant information on PEPs, as well as sanctions, watchlists, adverse media and more. And if there are material changes in a PEP’s risk status, this is flagged and can trigger enhanced due diligence any time – not just during periodic reviews.
Our database of curated risk profiles continuously monitors thousands of data sources for information on PEPs and PEPs by association. It brings together all risk-relevant information into a profile to support automated KYC, AML, ABC, and CTF processes. Our global PEPs database uses a unique risk rating system that considers the country, position, level, and event risks associated with a PEP. Comply with country or regional-specific regulations and principles.
Our AI-enabled review solution has sophisticated name-matching technology with advanced and customizable search filters to optimize the identification of PEPs risks relevant to you. Harness the power of AI and machine learning to automate alert processing with consistency and accuracy. Enhance intelligent PEP screening and monitoring with a solution that delivers precise results and a significant reduction in false positives.
A Politically Exposed Person (PEP) is an individual who holds a prominent public position. PEPs can include government officials, military officers, judges, senior sporting officials, and high-ranking executives of state-owned enterprises.
PEPs are considered as being at higher risk of bribery and corruption, as well as presenting an elevated risk of terrorist financing because they have the power to influence governments, key decisions, and they may have access to significant financial resources.
Because a PEP could abuse their position of power, or be coerced to engage in corrupt activities, such as accepting bribes or embezzling public funds, laundering money, or financing terrorist activities, they can pose a risk to businesses who work with them. The prospect of them being manipulated or blackmailed therefore needs to be considered in a KYC process.
Identifying PEPs is essential for compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) laws. Most jurisdictions’ regulatory requirements state that PEPs must be subject to enhanced due diligence (EDD), including ongoing monitoring. By identifying PEPs, organizations can better assess the risk of doing business with them and take appropriate action to mitigate that risk.
A Politically Exposed Person (PEP) by association is a person who is not a PEP themselves but is closely associated with a PEP, such as a family member or business partner. PEPs by association are considered to be at higher risk of being involved in financial crime, such as bribery and corruption, due to their close relationship with a PEP. Organizations need to identify PEPs by association in their business network to mitigate risk and comply with anti-financial crime regulations.
Identifying PEPs by association is important for organizations subject to anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. Organizations implement enhanced due diligence (EDD) measures to understand and monitor ongoing risks linked to those who are PEPs by association. EDD includes identifying when a PEP is a beneficial owner or controller of a legal entity, monitoring suspicious activity, and reporting suspicious activity to the relevant authorities.
It’s essential for organizations to have robust procedures to identify and manage PEPs and their associates. Failing to identify and manage risk effectively can result in fines for non-compliance and reputational damage.
To identify PEPs, regulated businesses conduct a process of enhanced due diligence (EDD) involving data checks. These screening checks may include reviewing public sources of data such as government websites, media reports, and international lists of PEPs. They may also rely on information obtained through third-party providers, like Moody’s, or data and declarations provided by the customer/supplier themselves.
Once a PEP has been identified, regulated businesses must build a risk profile for the individual considering factors such as their position, country of origin [domestic verses foreign PEP status], associated negative news stories, and business ownership activities. Organizations use a range of data checks and sources to build risk profiles and keep them up to date. This risk assessment informs decisions about working with a PEP, and the level of ongoing monitoring required.
Regulated businesses must monitor PEPs for ongoing and changing risk factors. This usually happens by integrating automated screening and data checks to refresh a PEP’s risk profile. Data checks that feed into a PEP’s risk profile can include confirmed alerts for sanctions, watchlists, fraud or other forms of financial crime, and negative news stories. Many organizations choose to employ a method of perpetual KYC (pKYC) for PEP screening and risk monitoring instead of periodic reviews as allowing long periods of time to elapse between reviews can leave significant risk undetected. pKYC is used to conduct automated checks and update risk profiles in real-time.
From the moment someone is elected to power or is appointed to a senior public/prominent role, they can be considered politically exposed, and this is when they become a PEP. Election or appointment is also when relatives, partners, and so on become PEPs by association. Marriage, divorce, births, deaths, and changing business partnerships also impact PEP and PEP by association status. There are however different PEP definitions around the world in different jurisdictions. Consequently, there is no globally accepted definition and often local rules apply.
The definition of when someone stops being considered a PEP varies from country to country and institution to institution. However, in general, a person stops being considered a PEP when they no longer hold a relevant public position or function. This can happen when they resign from their post, retire, or aren’t re-elected for example.
It is important to note that the status of a PEP can also be extended to family members and close associates, and people may continue to be considered as PEPs even after they have left their position. This is because they may still have access to resources and information that could be useful in illicit practices. Furthermore, they may still be able to exert influence or undue power over the actions of other senior or elected officials.
Overall, the determination of when someone stops being considered a PEP is complex and organizations need to give this careful thought and match their approach to PEP status with their own risk appetite. Many Financial Institutions (FIs) for instance adopt the approach of “once a PEP, always a PEP”, but this can vary significantly across organizations required to screen PEPs and PEPs by association.
In this episode of our KYC Decoded podcast, we’re pleased to welcome PEP experts Colleen Dychdala, Head of PEP data and premium content for Moody’s KYC, and Eric Almbladh, who built the leading PEP database for the Nordic region acquired by Moody’s in 2021. Their conversation with host, Alex Pillow, tackles the complexities of PEP risk management.
Screening for a politically exposed person (PEP) is a vital component of the know your customer (KYC) process. Organizations should and do conduct business with PEPs, but why do organizations need to screen for PEPs? How is PEP screening done? And how to firms address the ever-present “false positives paradox”? Read all this and more in this blog.
In September 2023, the FCA issued guidance pertaining to the treatment of Politically Exposed Persons (PEPs). Regulated businesses may need to reexamine their PEPs screening programs in response to this, or simply to ensure PEPs screening is effective and efficient. Moody’s has outlined its guidance for effective PEPs screening.
It’s important for regulated organizations to understand which PEPs and PEPs by association are in their business network. Considering PEPs most often hold public office, work in government, or serve state-owned organizations is there enough public understanding of what constitutes a PEP? Why PEPs might be considered a risk? What makes a PEP by association? And why they might be thought of as high risk?
With global consumer research on PEPs encompassing the US, Europe, and Asia, we garnered new insights showing:
We would love to show you what Moody's can do! Get a demo or alternatively, keep reading to discover more about how Moody's can help you.