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PEPs and Sanctions
What Are Politically Exposed Persons (PEPs)?
Politically Exposed Persons (PEPs) is a term used in financial regulation to describe someone entrusted with a significant public position. PEPs generally present a higher risk for involvement in bribery and corruption due to their position and the influence they may have.- Government Officials – Current and former government officials and employees appointed to domestic governing positions or positions in a foreign government. It may include elected and unelected:
- Heads of state;
- Military personnel;
- Administrative staff;
- Legislative and judicial professionals;
- Executive personnel;
- Political Party Officials – Senior officials holding critical roles in major domestic and foreign political parties.
- Senior Executives – Individuals holding senior executive roles (directors and board members) in government-owned commercial enterprises or international organisations.
- Family Members – Immediate family members (parent, children, spouse, siblings, in-laws) of government officials, politicians, and senior executives.
PEPs’ Risk Levels
PEPs can be divided into four different risk categories:| High Risk – Level 1 | Medium Risk – Level 2 |
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| Moderate Risk – Level 3 | Low Risk – Level 4 |
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Who Is Considered a PEP?
According to the Financial Action Task Force (FATF), a Politically Exposed Person (PEP) is any individual who is or has been entrusted with a prominent public function.Why Are PEPs Considered High-Risk
PEPs are regarded as high-risk customers for financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) as they have more opportunities to acquire assets through unlawful means and launder money.Domestic vs Foreign PEPs
Reporting analysts and professionals must automatically treat all foreign PEPs as high-risk customers. Domestic PEPs, on the other hand, while still regarded as high-risk clients, aren’t always treated as such, depending on the circumstances. Not all PEPs present the same AML and CTF risk.What are SPFs
Senior Political Figures (SPF) are individuals whose government and public positions make them vulnerable to corruption.What are Sanctions?
Financial sanctions are restrictive measures imposed on organisations and individuals to cut down their operations and exert additional pressure and influence. These measures include but are not limited to:- Financial sanctions;
- Trade sanctions;
- Travel restrictions;
- Civil aviation restrictions;
What Are PEP and Sanctions Checks?
PEPs and Sanctions checks are usually executed simultaneously as they are required by Know Your Customer (KYC) laws. They enable businesses to see if a company has been sanctioned or if a politically exposed person is linked to it. Sanction screenings verify if a company has been sanctioned for failing to comply with a court order, regulation, or law. Why FinHub’s PEP & Sanctions Module FinHub’s PEP & Sanctions module grants access to a wide range of global watchlists and sanctions. All the data is combined in a single set that is updated daily. It ensures the highest level of protection for every stage of the customer relationship (from initial onboarding to ongoing monitoring). Our fully scalable sanction screening solution is developed to help companies identify and respond to potential risks in real-time. It is vital for vetting clients correctly. Organisations can reduce risk and manage compliance requirements without compromising customer experience.What Does Our PEP & Sanctions Module Include?
Our module combines three PEP & SPF data levels into a single, easy-to-manage database.- Level 1 – Senior Political Figures whose position makes them and their immediate family and friends prone to corruption.
- Level 2 – Politically Exposed Persons (PEP) list that includes all level 1 figures, as well as regional, current, and former PEPs and their close associates and family members. The list is drafted per FATF and PEP guidelines.
- Level 3 – Watchlist that includes levels 1 and 2 and a much broader spectrum of individuals, such as civil servants, political party officials, senior law enforcement officers, mayors, non-governmental organisation managers, and labour group officials. It also features global police wanted lists, regulatory enforcement actions, adverse global media, and international sanctions lists.
Constant Updates
Our PEPs and Sanctions lists are updated regularly to identify more accurately: Individuals or entities that are sanctioned for known or suspected criminal activities; PEPs who are considered to be at an elevated risk of corruption;How to Run a PEP Check?
Maintaining up-to-date PEP screening is important to check companies and individuals accurately before doing any business with them. It helps organisations to comply with KYC laws and the 4th Anti-Money Laundering Directive. Streamlining PEP checks is easy with FinHub’s PEPs & Sanctions module. It combines cost-effective, instant online verifications with online monitoring. It prevents the usage of valuable resources for constant verifications on different companies. Our state-of-the-art software offers unique opportunities to improve screening processes. It uses artificial intelligence (AI) and machine learning to fine-tune matching and detection strategies. For example, previous methods could have pulled back false positives with zero ability to automatically discard individuals with the same name. Our module minimises the possibility of false negatives, which means fewer manual investigations. It achieves quality results by using additional data fields to assess whether individuals are the same, even if their names are spelt differently or incomplete.Challenges with PEPs check
The biggest challenge in effective PEPs & Sanctions screening lies in knowing when a true match has been detected. This is when an organisation is confident their customer is the party listed in PEP or sanction watchlists. In today’s neverending streams of different types of information, it’s extremely hard to discover the useful data necessary to correctly identify individuals around the world without generating false positives. Some businesses work with PEPs and sanctions list providers that claim to maintain comprehensive databases, but these lists often miss unique identities, such as dates of birth or addresses, which organisations can use to confirm a true match. Reducing investigations for false positive alerts is one of the main problems for financial institutions. Such alerts are often generated because of a mismatch between internal and external data. The more false positives are created, the higher the PEPs and Sanctions verifications cost. Keeping up with the volume of false positives has always been a problem for companies. The issue is caused by crude rules based on basic matching principles. Comparing the information in incomplete databases or using unclean data is highly inefficient, which is why organisations are looking for betters ways to execute detailed checks.What Is the Role of FATF?
The Financial Action Task Force (FATF) is an intergovernmental organisation created to design and promote standards and policies to combat financial crimes. The recommendations by FATF target money laundering, terrorist financing, and other threats to global finances and the economy. There are currently 39 members of FATS, representing most financial hubs worldwide. The list includes:- Argentina
- Australia
- Austria
- Belgium
- Brazil
- Canada
- China
- Denmark
- European Commission
- Finland
- France
- Germany
- Greece
- Gulf Cooperation Council
- Hong Kong, China
- Iceland
- India
- Ireland
- Israel
- Italy
- Japan
- South Korea
- Luxembourg
- Malaysia
- Mexico
- The Netherlands
- New Zealand
- Norway
- Portugal
- Russian Federation
- Saudi Arabia
- Singapore
- South Africa
- Spain
- Sweden
- Switzerland
- Turkey
- United Kingdom
- United States of America