FATF New Regulations for PEP Screening in 2024

May 6, 2024

 

The importance of money laundering and corruption incidents associated with PEPs has always been a converging point of attention all across the world. However, PEP status has always been a challenge to keep hold of. Due to dynamic and quick changes in the overall status of regional politics, PEP regulations are changing at a pace faster than ever.

In the world of financial crime, “PEP” stands for Politically Exposed Persons. The individuals empowered with the positions that give them autonomy to exercise their influence make them more susceptible to corruption and money laundering.

Are PEP harmful to the business in 2024?

The negative consequences of dealing with PEPs on a business vary from region to region. As there is no mutually agreed upon universal definition of the exact danger a PEP can pose to the business there are risk measures defined to control the intensity of threat they can pose to your business.

PEP screening in 2024 is going to be highly dynamic. A PEP falling at level 1 may drop down to level 4 or vice versa. Thus, despite the active role of PEP or not, the category of individuals must always be addressed with a risk-based approach in dealing with politically exposed persons.

“Once a PEP, Always a PEP?”

The duration for which a person should be accounted for or treated as PEP varies as per the defined laws and regulations of every state or region. In some areas, a PEP is accounted for and treated as PEP as long as he remains in a very specific position.

However, in some regions, PEP status and scrutiny don’t end with leaving the public position. Individuals would still be accounted for and treated as PEP, during what we call as a “cooling off” period.

Despite the regional differences and diverse set of standards, specific to each jurisdiction, what remains important is to implement AML/CFT compliance regulations to counter and manage the risk level associated with PEPs by PEP Screening Solutions.

What’s New About FATF New Regulations?

The new regulations put forth by FATF, implementation to begin from January 10th, 2024, and new changes are targeted at UK-based PEPs. the new regulations are meant to redefine and revise the standard set for assessing risks around Politically exposed persons.

The new regulations are most likely to increase the prevalence of due diligence in AML/CFT compliance among businesses and organizations across the UK.

What are the Key Insights to Take From New Regulations?

The new regulations have paved a new way in dealing with politically exposed persons all across the United Kingdom. Initially, as domestic PEPs are usually accounted as low risk as compared to international PEPs, the new regulations have discarded the differences, mandating the conduct of comprehensive risk assessments irrespective of the differences in nature and status of the PEPs.

The revised policies emphasize keeping a watchful eye out on all politically exposed persons under the regulation of 35(3), irrespective of the status of whether an individual is a domestic PEP, international PEP, relative or close associate to politically exposed individuals.

The new regulations are not mere standardized measures rather put forth the obligation to assess the PEPs with a very risk-based approach of PEP Checks, making the entire process of AML/CFT compliance less stringent or draining for compliance or reporting officers.

How to Enable Risk Based Approach to Assess PEP Risk?

In the fastly evolving financial landscape with millions of cases moving around, it is nearly impossible to offer the same level of focus and attention to all the PEPs that encounter your business in the first place.

In order to balance the requirement of AML/CFT compliance without wasting resources on low-risk PEP individuals, a risk-based approach to analyzing risk is more beneficial for the ecosystem and business requirements of compliance.

When we talk about the risk-based approach it involves modifying the security measures based on the individual’s ability to exercise their power utilizing the influence provided by the position.

How to Perform a Risk-Based Approach in PEP Screening?

Implementing a risk-based approach isn't enough, rather, the correct implementation is what matters the most. When it comes to a risk-based approach to screening PEP, two types of risks are evident:

  • Jurisdictional Risk - The susceptibility of the region to foster money laundering cases and corruption instances.
  • Individual or PEP Risk - The susceptibility of the individual itself to launder corrupt practices and be a significant part of money laundering schemes.

The question remains, is it a one-time thing?

Risk-based approach already drills down the compulsion to apply the same set of procedures to every individual. The customized approach then makes it important to make the process ongoing.

What to expect in the future?

With PEP status being completely dynamic, adopting a risk-based approach can make it easy to analyze the risk level associated with each individual, thus fostering informed decision-making, without reducing resources on an already high-risk subject during PEP Screening Services.

 

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