What are politically exposed persons

An individual who has prominently been involved in public activity, or is close to such a person, is often referred to as a politically exposed person (PEP).  Banks and other financial institutions carry out a PEP screening prior to opening bank accounts. This process is part of the initial due diligence procedure.

The procedure of screening politically exposed persons

Banks and other financial institutions are required to establish a system to screen clients for their political exposure. This is considered to be the initial stage of due diligence and is a procedure that investigates clients to determine whether or not they are associated with any public functions. The primary reason behind this screening is due to the fact that politically exposed persons are largely believed to be high risk clients in the current regulatory environment.

It is not just the individuals who are considered to be high risk clients, but also their family members, close associates and other individuals connected to them. As a result of this, they are monitored continuously by the financial regulatory body of the jurisdiction to ensure that their funds are generated from a legitimate source.

After the initial due diligence test has been completed and the bank has received information about a client being a PEP, the bank or financial institution is expected to deal with the client in the correct manner. In the event that the client is a politically exposed individual, the bank is advised to implement enhanced due diligence – especially if the client is involved in private banking activity. PEP screening, combined with KYC (know your customer), enables banks to provide their customer with enhanced due diligence procedures.