Managing your client relationships with politically exposed persons (PEPs) is a high-priority issue for any compliance officer responsible for this high-risk area of the business.
Managing PEPs in Practice
Despite the importance of these relationships for any financial institution (FI), there’s precious little guidance on how to actually interact with PEPs properly. The watchdogs and regulators are great at giving general directions, but it’s largely on the FIs themselves to decide how relationships with PEPs play out in practice.
Unfortunately, this has led to some difficult issues. PEPs, those who aren’t heads of state or in the most powerful positions of a nation, are rarely aware of how deeply their political life will also affect their financial life. While these less high-profile persons have braced themselves for political scrutiny, a level of investigation which pales in comparison to most, the idea of a ‘PEP for life’ which is common in most FIs, is often news to the PEP themselves.
The onboarding process is often the most difficult step in establishing a relationship with a PEP. The FI may not know them and the PEP requires enhanced customer due diligence (CDD) measures as a result of their exposure to corruption.
Benefits of Being a PEP
There aren’t many tangible benefits to being a PEP, especially being one that has political access but not the power of, for example, a cabinet minister or senator.
The only visible benefits of being a PEP seem to be focused around the political work itself. When it comes to personal benefits from their position, they are limited; legally there are few perks to the job. Of course, that distinction is why PEPs have to face such in-depth scrutiny from FIs to make sure no illegal benefits, such as bribes, are being reaped.
However, PEPs who wish to open a simple business account to operate an SME face an extensive wait period. Part of this may be due to the underwhelming offering that was historically offered by banks to small and medium enterprises (SMEs) for years. But there seems to be an extra unnecessary layer of difficulty for PEPs.
If the PEP is already known to the FI then their profile should be enhanced by taking advantage of the technology made available today. Using an advanced adverse media tool like AIM Insight would drastically reduce onboarding times and cuts down on the time the PEP spends uncertain of their financial future.
Modern SME banking solutions can be incredibly fast thanks to digital transformation projects, so taking upwards of six months to open a PEP business banking account can come across as excessive.
An anonymous PEP we spoke to shared his experience of multiple home visits and an extensive waiting period for obtaining an SME account. None of this was inherently an issue, but the lack of communication and clarity around the process makes it difficult to create a positive relationship.
PEPs are stranded in uncertainty — for those that want to get on with their financial lives, it’s made impossible by CDD checks that appear to have no rhyme or reason.
As compliance professionals, it’s easy to get deeply involved in the minutiae of what you’re looking for without ever communicating that to the individuals involved — that’s not to say you should breach any ‘tipping off’ rules or strategies in place, but removing layers of uncertainty where possible should always be an aim of an effective relationship management strategy with a PEP.
PEPs do not need to be apprised of their journey the entire time through an FI’s enhanced due diligence (EDD) and onboarding process. But by reaching out and engaging with PEPs, using measured explanations, that don’t breach watchdog guidelines, as to why the process can be arduous without the proper technology, compliance officers can create a strong foundation from which to build the PEP relationship.
PEPs are people: they have the same frustrations and concerns as other customers for the most part. They want to get on with their business far more than they care about the internal machinations of an FI, so if you can set expectations appropriately from the beginning, then you’re far more likely to manage a positive ongoing relationship with a PEP.
Read more on the challenges PEPs pose in our report.
Originally published July 16, 2020, updated November 17, 2021
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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