What does “good” PEP data look like?

This article was originally published by UK Finance in July 2024.

In my discussions with compliance leaders across leading financial institutions (FIs) this year, a recurring theme has been managing politically exposed persons (PEPs) and their associated data. With more than half of the world’s population heading to the polls before 2024 ends, the spotlight on PEPs has never been more intense. These leaders recognize that the bedrock of any robust screening process lies in reliable and accurate data, yet the specifics of what constitutes “good” PEP data are often less understood.

Defining good PEP data

For analysts tasked with managing PEP screening, achieving effectiveness and maintaining efficiency hinges on having access to enough information to help them accurately answer the question, “Do we want to do business (or continue to do business) with this person?”

The caliber of information they need surpasses mere identification basics such as names and dates of birth. What’s required is detailed information on the PEP’s roles, responsibilities, and hierarchies within governmental or regulatory structures. This is the first hallmark of good PEP data: 

#1. Detailed positional information

Understanding the specific nature of a PEP’s familial and professional connections provides a crucial context for evaluating potential vulnerabilities and exposure to illicit activities. It’s also pivotal for targeted risk assessments. Accessing data that categorizes PEPs based on their seniority levels enables organizations to prioritize compliance efforts and allocate resources effectively.

However, this information should align with the regulations and definitions of PEPs in each country in which a firm operates. These definitions vary significantly and impact how FIs conduct their screening processes – which brings us to the second hallmark:

#2. Domestic requirements are taken into account

In the UK, firms must treat individuals as PEPs for at least 12 months after they cease to hold a prominent public function. In Canada, however, a longer monitoring period of five years is imposed for its domestic PEPs.

This variance underscores the critical importance of PEP screening software that can flexibly adapt to different regulatory frameworks and present the relevant data to analysts according to the regulations of the country they’re operating in. Ideally, the software should automatically update and reclassify individuals as “former PEPs” once the required monitoring period ends, ensuring compliance with local laws and facilitating accurate risk assessments.

This is particularly important for firms that operate in multiple countries. But, to do this accurately, the data coverage must also be extensive.

The Challenge of PEPs

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#3. Data coverage

Effective PEP data management should encompass a wide range of sources and jurisdictions to ensure no critical information is missed. This includes global databases that are regularly updated to reflect new appointments, changes in status, and other relevant developments. Data coverage should be comprehensive, capturing PEPs from all countries where the firm operates or has significant business interests. This global approach helps identify PEPs who might be involved in cross-border activities or have influence in multiple regions, thus posing a higher risk.

While comprehensive data coverage is essential for capturing global information, a significant indicator of an entity’s risk profile lies within its transactional behavior.

#4. Transactional behavior analysis

Incorporating transactional behavior into PEP data management allows for a more dynamic and comprehensive risk assessment. Transactional behavior analysis involves monitoring the financial activities of PEPs to identify patterns that may indicate suspicious or illicit activities. This can include large or unusual transactions, frequent transfers to high-risk jurisdictions, or transactions that do not align with the PEP’s known sources of income.

By integrating transactional data with PEP profiles, compliance teams can better understand the risk landscape. This enables firms to identify potential red flags and contextualize them within the broader scope of the PEP’s financial behavior.