21st November 2019
Politically Exposed Persons (PEPs)
The 4 Quadrants of Risk
What is Politically Exposed Person (PEP)?
Providing a politically exposed person list is difficult as the criteria is broad and varies from country to country. The Financial Action Task Force (FATF) also issue frequent recommendations on PEPs, adding to the challenge of a having a definitive PEPs “list”.
However, most countries base their PEPs definitions on the guidance issued by the FATF, which categorize PEPs as:
- Government Officials
- Political Party Officials
- Senior Executives
- Relatives and Close Associates
The 4 quadrants represents varying degrees of risk levels that a politically exposed person can bring, depending on his/her position.
It is important for financial institutions to be aware of the risk level their client brings because this can determine how much scrutiny is placed upon said client as part of the risk-based approach.
Financial regulators require businesses to implement PEP screening measures as part of their AML programs to determine their clients’ PEP status. Businesses must be aware of the PEP regulations applicable in their jurisdiction so they can implement the appropriate AML measures.
PEPs legislation also changes over time, meaning that businesses must monitor these legislation changes and how it affects their business, in addition to having a PEP screening process in place.