Unmasking PEPs: The growing call for transparency in financial dealings

Unmasking PEPs: The growing call for transparency in financial dealings

Swiss authorities recently took action against the daughter of Uzbekistan’s former president, accusing her of crimes such as money laundering and bribery. This resulted in an asset freeze to the tune of $483m.

People in influential public roles or those closely connected to them, like family or business partners, often pose heightened risks for companies that engage with them. Such individuals are termed Politically Exposed Persons (PEPs). The power and sway these individuals hold, especially concerning public funds, make them susceptible to crimes like bribery, fraud, corruption, and money laundering.

A recent study by Moody’s Analytics revealed an eye-opening fact: 77% of the UK public is advocating for enhanced transparency concerning high-profile PEPs.

It is a regulatory mandate for financial institutions and some non-financial organisations to monitor PEPs. This is essential to ensure compliance with anti-money laundering and counter-terrorism financing regulations.

The challenge of evaluating PEP risk has grown more intricate for businesses bound by regulations. Data from the Moody’s Analytics Grid database – the world’s most extensive compilation of high-risk subjects – showcases that profiles of individuals identified as PEPs have surged by 32% worldwide in just the past year, now numbering over 2.7 million.

The general public needs a clear understanding of the implications of being a PEP and how PEP monitoring might directly impact them. For instance, when one applies for a mortgage or opens a bank account, they might be queried about their PEP status. Sometimes, individuals might be associated with a PEP without their knowledge, and this can influence their ability to access certain financial products.

The depth of understanding about PEPs among the UK public seems varied, as evidenced by a recent Moody’s Analytics survey of 2,023 UK respondents:

  • A majority, 55%, confessed they were in the dark about what a PEP stands for.
  • Almost half, 48%, were either uncertain or unconvinced about the concept of being a PEP by mere association.
  • Only 41% recognised that merely being a political ally of a PEP could grant them the PEP status.

The treatment of PEPs has piqued the interest of regulatory bodies, with a strategic focus planned for 2024. As of 5 September, the Financial Conduct Authority (FCA) initiated a review, examining how financial services firms handle PEPs. The aim is to ensure that such entities aren’t unjustly barring PEPs from obtaining financial services.

Moody’s Analytics General Manager of Know Your Customer Solutions, Keith Berry, weighed in on the matter, “Clarity on PEPs is clearly in the public interest. PEPs and their associates are important figures in public life, but with influence comes the risk of it being leveraged for criminal activity and the profits laundered through the financial system. This opens the door to major financial and reputational risks for organisations.

“The FCA requires firms to perform enhanced due diligence before starting a business relationship with a PEP. This is about accurately and fairly assessing risk – balancing factors like geography, public function, and any sanctions associations, before making decisions about whom to work with.

“Our research points to a lack of public understanding about PEPs, as well as a majority preference for more transparency around high-risk PEPs. This shows PEP risk management needs to be brought out of the shadows. Achieving transparency and compliance means ongoing refinement of PEPs screening programs. This refinement will need to include public awareness and better communication, while harnessing technologies, like AI and machine learning, to automate data gathering to create the most complete picture of PEPs risk possible.”

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