Understanding PEP risks is very important to protect an organization against risks. PEP risks come into an organization when it deals with Politically Exposed Persons (PEPs) who work in high positions. These people have a high chance of being involved in crimes like money laundering and corruption. Financial institutions must take care and stay alert while working with them.

With PEP Screening, businesses can protect themselves by getting to know of risks and eliminating them. It includes investigating clients and counterparties to find out if they have connections with PEPs. Through a strong PEP check, organizations are able to comply with the regulations and maintain their reputation.

According to research, around 98% of financial institutions deal with PEPs but just 50% make use of screening processes. This leaves huge gaps that allow corruption.

PEP risk assessment is more than just fulfilling your responsibility to comply; in fact, it is an important part of risk management. By identifying connections with PEPs, businesses can protect themselves against reputational harm, financial loss, as well as legal punishments. 

Learn how PEP Screening works and how it can improve your business processes. 

The PEP Screening Process

The steps involved in the PEP screening process are as follows:

1. Data Collection: The very first step is collecting data about your clients and counterparties. This data includes their personal information, financial records, and history of transactions.
2. Identification of PEPs: The second step is all about identifying the Politically Exposed Persons (PEPs). This can be done by using PEP screening software and going through databases.
3. Screening Against PEP Databases: The PEP data that is gathered in the second step then needs to be compared against more detailed databases to see if it matches any PEP profile. The databases have huge amounts of data including registries of the government.
4. Risk Assessment: After some likely PEPs are found out, a risk assessment is done and this helps in deciding the degree of risk linked to every relationship. 
5. Enhanced Due Diligence (EDD): In some cases, the risk is very high and such cases require extra attention. For this, organizations need to perform enhanced due diligence.
6. Documentation and Record-Keeping: Recording and documenting each and everything is very important. Organizations need to pen down the results and assessments.
7. Ongoing Monitoring: Organizations need to run their monitoring system all the time to see if there are any changes in the risk profiles or if any new connection is formed with PEPs.
8. Reporting of Suspicious Activity: If any unusual activity is seen during the screening process, it needs to be reported to the authorities, such as financial intelligence units or the regulatory agencies that are linked with AML and CFT guidelines. 

Note: A survey showed that between $800 billion and $2 trillion laundered money every year, might be connected to PEPs. Read this blog and learn how you can stop money laundering with PEP Screening.

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PEP Screening Requirements

Here are some common PEP Screening Requirements:

1. Regulatory Compliance: It is a must for FIs to follow the guidelines related to AML and CFT established by the authorities.
2. Customer Due Diligence (CDD): Organizations must perform due diligence on their clients especially during the onboarding process to make sure they have not been involved in any crimes or have any links with PEPs. 
3. Risk-Based Approach: A risk-based approach must be adopted by organizations as it helps in focusing more on the high-risk clients and it becomes easier to identify risk.
4. Enhanced Due Diligence (EDD): When any customer becomes a PEP, the risk they carry increases and because of this, organizations need to perform more in-depth due diligence on them.
5. Screening Tools and Technologies: Businesses must use screening tools like PEP Screening, sanctions screening and even corruption monitoring to make it easy to identify people who are risky and have a chance of damaging your company.
6. Record-Keeping and Documentation: Organizations must keep records of the PEP Screening done. 
7. Ongoing Monitoring: Institutions must monitor all the time as this helps in identifying changes in the status or risk profiles of PEPs.
8. Reporting Obligations: In case any problem or suspicious activity is seen it must be reported to the authorities quickly. This helps in fighting the crime on time and maintains the honesty of the organization.

The Way Forward

PEP risks bring many challenges to businesses especially the ones in the financial industry like banks. By making use of PEP screening along with enhanced due diligence practices, organizations can make themselves strong against the rising crimes and maintain their reputation.