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Who is a Politically Exposed Person (PEP)?

All good companies care about giving their customers a seamless experience — but not at the cost of security. When it comes to keeping security on lock, identifying potential politically exposed persons (PEPs) is especially crucial for organizations experiencing rapid growth: increased momentum shouldn’t mean increased risk. With the right solution, companies can simplify the screening process while remaining safe and compliant as they scale.

On top of the security concerns, organizations that fail to properly flag PEPs can face serious consequences. In early 2019, the Financial Conduct Authority (FCA) fined Standard Chartered Bank £102,163,200 (~$134,039,000 USD) for, among other violations, not conducting due diligence on a compromised customer despite red flags. Governments have also strengthened their anti-money laundering regulations in recent years — the European Union’s Fifth Anti-Money Laundering Directive has taken effect as of 2020 and the United States’ Bank Secrecy Act was amended post-2001 to include customer identification requirements — and smart companies are working ahead to avoid the financial and reputational damage that results from a PEP misstep.

For many organizations, screening PEPs is a key part of meeting compliance regulations. If you haven’t yet accelerated and strengthened your PEP screening process, it’s time.

Why you should screen for PEPs

You’re likely already familiar with the accepted definition of a PEP. A politically exposed person is someone who has been entrusted with a prominent function at an organization — a person with the kind of influence that could lead to a misuse of financial systems. As the name implies, a PEP is often a person who holds an important domestic or foreign political office, but the term is broad enough to include relatives and close associates of prominent public figures and senior executives.

Examples of persons identified as PEPs include:

  • Foreign PEPs: individuals given prominent public functions by a foreign country
  • Domestic PEPs: individuals entrusted domestically with prominent public functions
  • International organization PEPs: persons given a prominent function by an international organization
  • Family members related to a PEP
  • Close associates of a PEP

PEPs pose a higher risk than more traditional customers when it comes to security: because of their position, they’re more easily able to engage in money laundering or the funding of criminal behavior. While it’s not a foregone conclusion that someone who has been flagged as a PEP will engage in criminal activity, it’s wise to take extra steps when vetting that individual as a customer.

In many organizations, this screening is already mandatory — for instance, national banks in the U.S. are required to screen for PEPs, ascertain the level of risk they pose, and then implement appropriate risk mitigation measures to protect their customers. In Canada, financial institutions, life insurance providers, securities dealers, and money services businesses must also have a process in place to screen for and assess PEPs, in accordance with new legal requirements implemented in 2017. Each country may vary in how it adopts the FATF guidelines for screening PEPs, so companies — particularly those with international operations — should pay close attention to the country-level requirements that may apply to them and, wherever possible, default to the most stringent standards to ensure maximum compliance.

Common challenges in screening for PEPs

There are four common challenges that companies face when attempting to regularly screen for PEPs:

  • False positives or false negatives in compliance queues
  • A large volume of users requiring re-scanning on a regular basis
  • PEP screening workflows that are high-friction for customers, which in turn results in an influx of support tickets
  • Lack of development resources to optimize compliance

Since a person’s risk profile can shift over time, it’s important to never treat screening like a one-off initiative; be sure to conduct ongoing PEP monitoring to flag any changes in status. To successfully adhere to this best practice while ensuring a streamlined customer onboarding experience, companies need an efficient, automated solution in their corner.

Addressing any or all of these challenges would normally take a considerable amount of staff time and resources. Cognito can efficiently resolve them by alleviating the administrative burden and bringing your organization into compliance.

How Cognito efficiently flags PEPs for you

Cognito’s Watchlist solution efficiently flags PEPs for you, filtering out false positives and enabling you to implement a high-quality sanction screening program.

Watchlist screens for and identifies PEPs via:

  • Industry-leading search algorithms. Our proprietary search algorithms take into account the day-to-day edge cases that occur, along with watchlist databases and user inputs, providing a reliable and comprehensive list of potential matches for your customers.
  • Gradual user verification. We gradually fill out each customer’s profile so you can screen them at every step of the way, enabling you to start screening your customers with as little information as possible.
  • Ongoing re-scans. Cognito reassesses hundreds of millions of users each month to promptly catch any changes in the status of your customers.
  • Relevant databases. We screen a large number of databases from across the world, meaning that you get a clearer picture of who you’re dealing with. Our databases are accurate, and we use data normalization to cross-reference more than just names.

All of these benefits can give compliance leaders confidence that they’re properly managing the risks associated with PEPs, and can free them up to focus on more advanced initiatives that will help the business remain compliant and secure as it rapidly grows. Meanwhile, product managers will appreciate having more efficient systems in place that enable rather than hinder that growth so they can quickly deliver innovative solutions for the company and its customers.

Efficiently screen PEPs and securely grow your business

Your customers aren’t static, and your screening process shouldn’t be either. Cognito strengthens companies’ compliance processes on an ongoing basis, adjusting to changing business requirements as needed. For example, companies can simulate sensitivity and program changes with samples of their real user-base to estimate how changes in their compliance program will impact agent workload and overarching goals.

Identifying PEPs who pose a risk to your business is just one challenge among many when it comes to compliance. Not only does Cognito address these challenges, but it also establishes a strong foundation for a company’s compliance processes so that it can focus on its core priority — achieving secure, compliant growth.

Discover how Cognito’s watchlist and PEP screening features help your company achieve compliance and deliver a seamless customer onboarding experience.

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