Explore How the Financial Sector Can Improve PEP Screening

Participation in illicit financial activities may be voluntary or involuntary, however, it doesn't alter the consequences for any entity. The fact remains that financial institutions are highly prone to corruption. All of their services leave a gap for criminal offences thus making them potentially exposed to corruption.

The bank’s exposure to corruption risks can be analyzed through the Danske Bank scandal. The Estonian Branch of Danske Bank facilitated $200 billion to flow through their branch to countries including Russia, Azerbaijan, and more.

As a result, banks and other financial institutions have a great responsibility to combat corruption and related legal, economic, and reputational risks.

In light of rising financial crimes through financial institutions, this blog will address two types of illicit involvements, PEP screening system across financial institutions and more. Read ahead to know all about PEP Screening.

Active vs. Passive Finacial Crimes

There are usually two ways in which financial institutions become involved in corruption. These two passages could be:

• Financial institution employees themselves commit an act of corruption in the form of bribery, corruption, and money laundering - a form of employee risk.

• Misuse at the end of the customer base such as a customer to disguise corrupt sources of funds or commit tax fraud - a form of customer risk.

Combatting financial crimes mandates the need to understand financial institutions as legal persons, whose employees and customers both are at increased risk of committing financial fraud.

The fact remains that the implementation of significant AML controls is recommended to redefine and shape their security controls to the fullest.

Understanding Who are Politically Exposed Persons (PEPs)?

As mandated (FATF)Financial Action Task Force, a person assigned with a prominent public position, whose position gives them the power or influence to manipulate their position and pose a greater risk of getting involved in money laundering-related activities.

Moreover, as per article 52 of (UNCAC) The United Nations Convention Against Corruption, the family, relatives, and close associates of PEP individuals are also considered prone to misuse their power to alter the financial landscape. This article also combines family members and close associates of individuals as having a higher potential of misusing their positions due to their infamous identity.

PEP Screening Remedies to Combat Corruption in the Financial Sector

As with the growing complexity of financial crimes, the FI’s must broaden its capacity to deal with Politically Exposed Person. Dealing with such high-risk individuals goes beyond ordinary screening to due diligence. Who to screen? When to screen? How frequently to screen? These are some of the concerning yet frequently asked questions across industries. This guide will help you address these, improving your understanding of the topic of PEP compliance.

1. Custom Risk Scoring

Given the evolving nature of crimes, a comprehensive and well-managed internal system can help fight against the dynamic nature of crimes.

Integration of a flexible risk scoring system enables pre-set scoring parameters for a set of individuals. Such precise categorization helps detect corruption cases beyond the surface.

A proactive approach to setting pre-set risk parameters makes it easier to avoid overscreening or undersleeping high-risk individuals, thus overcoming gaps in risk analysis.

2. Worldwide Data Coverage