PEP Full Form

What is the full form of PEP?

A “Politically Exposed Person” (PEP) is a person that holds a prominent public position or function. Due to their role, they are more susceptible to bribery, corruption and other money laundering offences, as a result, they are of high risk to many financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs).

This Story also Contains

1. What is the full form of PEP?
2. Classification of PEP:
3. Examples of PEP
4. Identification of a PEP
5. Screening process of a PEP

Because of their network and influence, a PEP has more opportunities to acquire illegal assets compared to a common man. Hence, a ‘Politically Exposed Person’ in a bank means a high-risk client who can easily acquire assets through illegal means such as bribery, terrorism funding, corruption, and money laundering.

Classification of PEP:

• Domestic PEPS: It is an individual that holds a prominent public position or functions domestically. It includes the Head of State or government, senior executives or financial regulators.

• Foreign PEPs: It is an individual that holds a prominent public position or it functions within a foreign country. It includes the Head of State or government, senior executives or the financial regulators of foreign countries.

• International PEPs: It is an individual that holds a prominent public position or it may function by an international organisation. It can include members of the board in an organisation and senior management positions.

• Family members: Any individuals that are related to a PEP can also be classified as a PEP.

• Close associates: Any individual who has close relations with a PEP which may be social or professional.

Examples of PEP

PEPs in Government Roles can include – members of the legislative, judiciary, and executive bodies; or they can include individuals in diplomatic roles or seniors at state-owned enterprises.

At central financial institutions, PEPs can be identified as a court of auditors, board members, etc. Also, high-ranking officers in the armed forces and members of international sports committees can be classified as PEPs.

The third category of PEPs is called ‘close associates of PEP’. It includes individuals with a business relationship, joint ownership of legal entities, and legal arrangements with a PEP. They might also be someone who has sole beneficial ownership of a legal entity.

The immediate family members of PEPs can also be considered as PEPs. It includes children, spouses, siblings, uncles/aunts, in-laws, and close relatives of PEPs

Identification of a PEP

PEP can be identified as:

• Heads of state, or government, ministers, and maybe deputy or assistant ministers

• Members of the Parliament

• Members of the courts of auditors or the boards of central banks

• Maybe the members of the management, administrative and supervisory bodies of state-owned enterprises

• Members of the supreme courts, constitutional courts and other high-level judicial bodies.

Screening process of a PEP

While conducting a PEP screening, it is important to identify the politically exposed person and to identify their relatives and close associates (RCA). Besides, every PEP does not have the same risk because PEPs can be of many types. The risk can also be created by foreign PEPs, domestic PEPs, international organisation PEPs, and foreign PEPs are much higher than the risk of a domestic PEP. It is necessary that financial institutions should implement and also improve PEP screening processes.

The PEP Screening must be performed in accordance with the risk understanding of a FI applying a risk-based approach. Also, the PEP Screening should be done during the customers' initial engagement process while periodically reviewing customers when any triggering event needs a Customer Due Diligence review. In most cases, PEP Screening is not one of the primary controls for identifying PEPs.

Data quality standards necessary for PEP Screening:

Many Financial institutions keep data records of electronic customers which can be used for the unique identification during the process of PEP screening. Otherwise, the process of PEP screening can yield irrelevant results due to the absence of complete information. Therefore, the minimum necessary data financial institutions should know for PEP Screening include:

• Full name

• Date of birth and year

• Country of the political exposure

• Gender

• Politically exposed roles, date and year of appointment

• The date when the post was left by PEP