Some cases have only reemphasized the need for more effective Politically Exposed Persons (PEP) screening in the last few years. In 2019, Standard Chartered Bank paid a fine of $1.1 billion for poor oversight of PEP screening. The bank processed transactions for high-risk accounts, including PEPs, without proper PEP monitoring.
This case, amongst others, buttressed the need for adequate PEP and sanctions screening. These two measures are equally essential to the KYC compliance and AML processes. However, the question on many lips is why PEP screening is so important, even for businesses today.
What is PEP Screening in AML?
PEP screening is the process of collecting and verifying people’s data against databases that have information on known PEPs. Systems sift through large amounts of data to spot possible matches by considering aliases, spellings and other things.
PEP screening aml targets people in important public offices and their affiliates. Because of their positions in power, PEPs are considered a high risk of corruption, money laundering and bribery.
The best PEP screening technologies use PEP scoring to assess and guide compliance teams. Once a PEP is identified, you should employ enhanced due diligence which involves gathering more information on these people. Such information should include their source of wealth, the nature of transactions and business relationships. This is a measure to assess the level of risk they may pose.
What is Sanction Screening?
Sanctions screening identifies people or organizations against global law enforcement and sanctions list. This is to understand the risks of having financial transactions with such people or organizations. It is important to reduce the risk involved in doing business with such a person.
Account screening and transaction screening are two important aspects to consider when creating your sanctions screening program. Account screening involves taking a list of information and matching it up with their submitted information to help scrutinize accounts that do not match the sanctions list.
Importance of PEP and sanction screening in KYC and AML Compliance
PEP and Sanction screening is important for two major reasons:
1. Identification of high-risk clients:
PEP screening in AML is important because it helps businesses identify high-risk PEPs. Once identified on the sanctions list, businesses can then take the necessary steps needed to make sure their business relationship is legal and follows every compliance requirement.
2. Complying with Regulatory Requirements:
The goal of PEP screening in KYC and AML processes is to fulfil regulatory requirements and protect financial institutions from falling victim to money laundering, and other financial crimes. PEP and sanction screening are part of your customer due diligence procedure, which means they are necessary for your company’s compliance. When you fail to screen your customers, it can lead to your company paying huge sums in fines. One such example is the International banking group BNP Paribas, paying almost $9 billion in 2014 for processing transactions illegally for failing to comply with sanctions.
3. It Protects Businesses' Reputation:
PEP screening also has a huge impact on businesses. When a business or financial organization fails to carry out proper PEP screening on a prospective client, it can lead to such businesses suffering reputational damage as a result of doing business with an individual on the sanction list.
4. It Costs Business Time and Money:
KYC and AML processes not efficiently done can cost the business time and money whenever a new customer is onboarded. This means that every time a legitimate customer has to wait to be verified, they wait additional time to get the service they need. These screening processes impact the customer service experience and the business’s reputation.
Recommended read: Ultimate Guide to KYC & AML Compliance
How Sanction screening enhances AML compliance Efforts
Sanction screening is an important aspect of AML compliance as it protects organizations from engaging in illegal business transactions with individuals on the sanctions list. Regulatory authorities give these lists to restrict the financial activities of individuals and organizations involved in terrorism and other sanctions activities.
Implementing effective sanction screening processes will help organizations comply with regulatory requirements and protect their reputation. They can also avoid suffering the penalties that come from non-compliance. It is a proactive measure to restrict financial crimes and protect the global financial system’s integrity.
Best Practices for Implementing PEP and sanction screening in KYC
To make sure that you implement PEP and sanction screening in KYC, it would help to follow these best practices to create an accurate and direct approach:
1. Connect to high-quality data sources
The data you collect to conduct these screenings must come from trusted, up-to-date databases. These platforms must have comprehensive records that are integrated with other watch list databases. This ensures that the information you receive can be verified and trusted.
2. Perform a risk-based approach
The FATF recommends taking an internal risk assessment. This is to ensure that your definitions of PEPs are according to the financial institution’s policies and risk appetite.
3. Conduct ongoing PEP monitoring
Create a system of ongoing PEP monitoring of individuals and organizations that qualify as PEPs and are on the sanction list. This is to make sure that you have up-to-date information about the individual’s activities. Monitor your customers daily so that you can receive alerts when there are any changes to your customer’s status. This is to ensure that they complaint with KYC and AML regulations.
4. Use best-in-class technology platforms
Financial institutions can also use AML/KYC solutions designed to help mitigate risks. An API-led solution can pull data from various sources to screen customers against Sanctions and PEP information databases. Technology like AI and machine learning can help financial institutions reduce false positives and create an efficient screening process.
Recommended read: Machine Learning and AI in Fraud Detection and AML Compliance
Perform Advanced PEP Screening for your KYC Processes with Youverify AI-Powered Technology
PEP and sanctions screening are very critical for an individual or organisation’s reputation and integrity. They are important aspects of the KYC and AML process which businesses ought to comply with. Resisting compliance with these processes can open individuals and organizations to breaking the law unknowingly by making transactions with entities on the sanctions list.
At Youverify, we provide an advanced PEP screening service that utilises cutting-edge algorithms and AI technology. Our platform continuously updates domestic PEP profiles in real-time by gathering information from various sources such as news articles, online sources, and government records. This ensures that you always have accurate and up-to-date information readily available.
Are you finding it difficult to keep up with the frequent updates needed for your business as sanctions and PEPs change rapidly? Contact our PEP Screening expert for a free demo on how Youverify can help you and your business.