A Guide to PEP and Sanction Checks

If you own or work for a business that must comply with “know your customer” (KYC) and anti-money laundering (AML) regulations, then odds are you’ve heard of another three-letter acronym: PEP or “politically exposed person.” While the definition of a PEP is continuously changing to reflect new legislation, in general, a PEP refers to a person or a close associate who has been trusted to fulfill a public role, such as an elected official, and who is also at high risk of bribery or some form of corruption. While it’s commonplace for federally regulated companies like financial institutions to perform identity verifications as part of their onboarding processes, PEP checks are part of “enhanced due diligence” (EDD) required before the company forms a business relationship with the PEP.

PEPs are separated into several categories, including domestic and foreign PEPs. These distinctions reflect the variations in regulations across different jurisdictions. KYC laws are continually changing, and it’s up to regulated companies to update their PEP checks so that they’re compliant. Failing to comply not only subjects the organization to hefty fines but also jeopardizes its reputation and financial integrity. So, regulated industries must conduct PEP scans before and throughout their business relationship to maintain compliance and reduce fraud.

Because PEPs are often business-minded individuals who typically have privileged access and affiliations with private companies, KYC laws often require sanction checks. These sanction screens check whether an organization has been sanctioned for violating KYC policies and help a regulated company uncover the nature of the PEP’s relationship with the organization. Together, PEP checks and sanction screens reduce a company’s exposure to hefty fines or reputation damage.

Because KYC laws and AML data are always shifting, it is genuinely impossible to manage the risks associated with handling millions of customers’ sensitive data. So rather than regularly scanning and rescanning millions of customers by hand, save your time, your money and your limited resources by integrating smart technology that does it for you. There are many solutions out there, but the right software is going to streamline your operation, reduce costs and keep your business compliant as it navigates regulation changes for you.

Read a similar article about PEP screening tactics here at this page.

Applying a Risk-Based Approach to Financial Crime Screening for Insurance

An increased focus on anti-money laundering and countering the financing of terrorism (AML/CFT) regulations in the insurance industry has led to specific guidelines for different types of insurance based on the level of risk. The risk associated with each insurance type determines the controls and processes that the provider needs to have in place. High-risk businesses such as life and marine insurance, for example, will need more stringent controls read more

Four Digital Payment Trends for Banks and Payment Service Providers in 2021

Enablers such as payment service providers and Banking as a Service platforms have lowered technical barriers for entities to launch payment products. Open banking and other initiatives have fostered an ecosystem of financial entities that are willing to instantly share data via API read more

How KYC is An Important Component of FinCEN

In 2001, FinCEN implemented KYC, or know your customer regulations, as part of the Patriot Act. These requirements are intended to be counter-terroist efforts as well as a way to prevent other financial crimes such as money laundering and fraud. Learn more about KYC, what it means for businesses and who FinCEN actually are below.

What is FinCEN?

FinCEN, also known as the Financial Crimes Enforcement Network, is a regulatory body which is part of the US Department of the Treasury. Their primary mission is to collect data and analyze it to prevent financial crimes, especially crimes such as money laundering and terrorism funding. The know your customer compliance regulations are a part of this mission.

What are the Main Facets of Know Your Customer Compliance?

If you’re unfamiliar with know your customer compliance, here are a few of the main components:

Customer Identification

This requires financial services to collect enough information to properly identify their new potential customer. This means that individuals will need to provide several different forms of identifying information in order to start an account. Things like photo ID and their social security number are common. Businesses must also provide identifying documents.

Customer Due Diligence

Identifying customers properly is important, but further due diligence is required to determine the trustworthiness or risk of an individual or business. Due diligence involved looking at who and individual or business deals with financially, or who they’ve dealt with previously. For instance, if an individual holds public office, or a business regularly works with less than reputable organizations, they would be considered higher risk.

Ongoing Monitoring

Finally, once identification and due diligence is completed, a financial service must continue to monitor the financial dealings of their customers to ensure no illicit activity is going on. A mixture of risk-assessment software and manual employee investigation will be required to do this effectively.

Know your customer compliance is essential for banks and financial institutions to follow, so it’s important they stay up to date with the latest KYC software and procedures to ensure that they mitigate risk as much as possible.

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AML Requirements – Five Steps to Keeping Up for Law Firms

This blog, first published on the Law Society of England and Wales website, provides five actionable steps to help law firms manage compliance and keep up with ever changing AML requirements. The SRA Standards and Regulations and the 5th AML Directive (5AMLD), which came into effect on 10 January 2020 in the UK, both discourage law firms from ’blanket screening’ their clients and instead advocate a risk-based approach read more

AML Checklist for Banks

Detection, deterrence, and money laundering prevention require the following on every AML checklist for banks:

1. AML requires an anti money laundering compliance officer (OCC) to oversee the entire application process, including the screening and issuance of business licenses.

2. AML requires periodic on-site audits of financial transactions by an AML compliance officer and a KBS officer.

3. AML requires notification by the office of the comptroller of the currency (OCC) to the designated senior management and key personnel of all negative findings in the on-site or off-site examinations.

In short, the primary responsibility of an anti money laundering compliance officer is to monitor compliance with the various provisions of the money laundering risk management act (MLRMA). The OCC and KBS have additional responsibilities, however. The AML officer or KBS and their designated senior management will conduct an on-site examination of financial activities. On the other hand, the OCC and KBS will have responsibility for determining if entities need to further enhance the AML compliance program with specific, applicable regulatory documents, such as the comprehensive loss underwriting exchange (CLUE) and the security rule list (SRL). They will also have responsibility for addressing customer concerns, issues, and suggestions on areas for improvement.

If senior management is unaware of the specific regulatory documents and requirements, they need to ensure that they do not assist in a money laundering or terrorist organization. Anti money laundering compliance officers should be very proactive in their efforts to ensure that senior management and all key personnel are very well informed about their respective firms' specific requirements and regulations. Failure to be well informed could prove costly to the firm. Unless specifically trained to do so by their bank, anti-money laundering officers should never provide any bank documentation to anyone.

Read a similar article about business verification here at this page.

KYC Challenges and Technology Transformation

A recent Accuity KYC survey revealed that 75 percent of compliance and correspondent banking professionals have encountered added complexity in interpreting local legislation and 68 percent are suffering from a lack of skilled staff. With the cost of compliance also still a major challenge, financial institutions are looking to new technology to provide the answer read more