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News

Reduced bank exposure to criticism with effective PEP screening

Qognify : 24 March, 2009  (Technical Article)
After recent high profile criticism into bank's handling of politically exposed persons, Actimize explains its screening solution
In the past month, two major UK financial institutions have been subject to criticism regarding compliance practices relating to Politically Exposed Persons (PEPs). PEPs must be treated differently when it comes to money laundering risk, but what exactly is a PEP and how can financial institutions identify them?

You may be surprised to find that not only politicians, large and small, past and present, but also those related to potentially exposed people are tracked within PEP lists. What that means is that, in addition to the Royal Family and Gordon Brown, managers of State-owned companies, local council members and all of their family members are also tracked. Sons, daughters, wives, brothers and also business partners - the list goes on, literally.

Firms are challenged not only to track PEPs, but to also identify those clients that may be related to them. As we've seen recently in the press, there is still quite a lot of confusion around how to manage PEPs and collect information from clients regarding their PEP profile.

"Banks are rightly obliged to take measures proportionate to the risk presented by each customer to ensure that corrupt kleptocrats don't abuse the banking system," explains Bruno Piers de Raveschoot, Vice President of Actimize Europe. "It is a difficult challenge for banks to strike the right balance. However, with the correct procedures in place, there is no need for banks to compromise customer experience, or to let the bad guys go undetected."

The Third EU Money Laundering Directive and other AML regulations around the world require that financial institutions conduct enhanced due diligence on high-risk clients. With regulators increasingly focused on risk-based AML programs, inactivity is no longer an acceptable response. Banks must respond swiftly, despite the challenges.

"PEPs as clients present a real challenge to all institutions undertaking regulated activities. Under Anti Money Laundering (AML) rules, compliance procedures and reporting must correspond to the assessed risk presented by each client," adds Piers. "However, firms still have difficulty in recognising the involvement of PEPs as clients, and in monitoring and understanding the context of related transactions. Complex trust instruments and corporate shells may be involved, and ongoing transactions may appear to be either unrelated to a PEP or simply innocuous."

The Actimize solution ensures that institutions keep track of customers and activities, flagging clients and transactions for review, thus enabling investigators to see the full range of a client's dealings at a glance and to spot any irregularities or suspicious activity. The solution provides comprehensive life cycle Risk Management - from initial collection of customer information and verification of identity, to assessing risk and efficiently investigating and managing cases. Actimize's platform identifies, scores and flags up relevant news, transactions, trust beneficiaries, documentation and other 'out of box' risks to ensure that all factors are taken into account in compliance processes.

"There are a number of ways that banks can comply with regulations whilst maintaining privacy, concludes de Raveschoot. "They can utilise back office screening of customers against PEP lists, or set up risk based account opening processes with carefully defined questions that are asked only if clients trigger certain risk flags.
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