PEPs and Sanctions lists are not set in stone

PEPs and Sanctions lists are not set in stone

Time Stamp: July 20, 2023 6:29 AM
PEPs and Sanctions lists are not set in stone PlatoBlockchain Data Intelligence. Vertical Search. Ai.

In the UK, fraud has become a significant concern, to the point where it has been reclassified

as a threat to national security, elevating its status to that of terrorism. This highlights the importance of addressing fraud and its associated risks. Among the individuals most susceptible to fraud are politically exposed persons (PEPs) due to their influential positions, which make them more vulnerable to bribery and corruption.

When businesses onboard new customers, it is crucial for them to conduct thorough screening checks and due diligence to understand the identity of the customers they are dealing with. Screening for PEPs allows organisations to identify high-risk customers and implement robust Anti-Money Laundering (AML) compliance measures.

Not Static and Constantly Evolving

 

PEP and sanction lists are constantly changing. Individuals, their families, or close associates are consistently added or removed based on personal roles, responsibilities, and political factors. Furthermore, the UK government periodically reviews its sanctions lists, modifying the targeted countries, businesses, individuals, or the restrictions imposed on them. Financial institutions and large corporations must incorporate screening for these lists into their know-your-customer (KYC) processes.

Major national and global events can prompt revisions to PEP and Sanctions lists. For instance, the recent Russian invasion of Ukraine or the Coronation of King Charles and Queen Camilla may have consequences on these lists. Even without such events, the details and listings of sanctions are continually evolving. Failing to keep up with these changes can lead to severe consequences.

Compliance with regulatory requirements

 

Regulatory bodies across the globe, such as the Financial Conduct Authority (FCA) in the UK, impose stringent obligations on businesses to ensure compliance with AML regulations. Failure to implement adequate risk-based procedures, including PEP and sanction screening, can result in severe consequences, including substantial fines. In the past, businesses have faced substantial fines for inadequate risk-based procedures. For example,

Barclays was fined a record £72 million in 2015 for insufficient PEP checks. More recently,

Guaranty Trust Bank UK was fined £7.6 million due to weaknesses in their PEP screening, and other

fines being given by the FCA for lack of appropriate  AML measures.

As Mark Steward, the FCA’s enforcement director,
said: “Firms must protect themselves and those dealing with them from financial crime risks, especially money laundering.”

Failure to identify high-risk customers, such as PEPs or sanctioned individuals, can lead to significant financial losses. Businesses may inadvertently facilitate money laundering, fraudulent activities, or illegal transactions, resulting in financial and legal consequences.

By implementing thorough screening measures and staying up-to-date with evolving PEP and sanction lists, businesses can demonstrate their commitment to regulatory compliance and mitigate the risk of non-compliance penalties.

Technology-Empowered Processes

 

While manually checking PEP and sanctions lists can be challenging, especially for entities operating in multiple jurisdictions with varying rules, there are proven digital solutions that simplify and enhance the process. These tools automatically update PEP and sanctions lists and screen customers against them, ensuring ongoing compliance for the business.

Implemented as part of a technology-empowered onboarding process, these solutions not only check names against lists but also verify the authenticity of customers’ identities through document checks, facial matching biometrics, and database checks to detect forgeries, tampering, and match customer details for fraud protection.

Using such technology eliminates the problems associated with manual processes, including lengthy waiting times, time-consuming false positives, human errors and data inaccuracies. It is both efficient and reliable, consistently meeting PEPs, sanctions, and other AML requirements while remaining cost-effective and compliant. Technology not only improves operational efficiencies; it also enhances the overall customer experience.

There are various ways technology can be used in ensuring PEPs and Sanctions compliance:

Automated Screening Solutions

Implementing automated screening solutions is a game-changer for businesses striving for efficiency and accuracy in PEPs and Sanctions compliance. These solutions utilise advanced algorithms and databases to automatically match customer data against updated PEP and sanction lists. By streamlining the screening process, businesses can reduce the risk of human error, enhance efficiency, and ensure comprehensive coverage of relevant lists.

Real-Time Updates

Technology-enabled solutions provide real-time updates on PEPs and Sanctions lists. They continuously monitor changes in the lists, ensuring businesses stay current with evolving regulations. Real-time updates enable prompt identification of new additions or removals from the lists, allowing businesses to adapt their compliance measures accordingly. This proactive approach ensures a robust compliance framework, minimising the risk of inadvertently engaging with high-risk individuals or entities.

Enhanced Risk Assessment

Integrating technology into PEPs and Sanctions screening enables businesses to perform enhanced risk assessments. Automated screening solutions can assign risk ratings to customers based on factors such as their PEP status or the severity of sanctions they are subjected to. By incorporating intelligent risk assessment algorithms, businesses can prioritise their compliance efforts, focusing more attention on high-risk customers while streamlining the screening process for low-risk individuals.

Identity Verification and Authentication

Technology-driven solutions offer advanced identity verification and authentication capabilities, complementing PEPs and sanctions screening. These solutions utilise document checks, biometrics, liveliness testing and database cross-referencing to verify the authenticity of customers’ identities. By ensuring that customers are who they claim to be, businesses can establish a higher level of trust, minimise the risk of identity fraud, and strengthen their compliance measures.

Auditable Trail and Reporting

Technology enables businesses to maintain an auditable trail of PEP and sanction screening activities. Automated solutions generate comprehensive reports, documenting the screening results and providing evidence of compliance efforts. This audit trail is invaluable during regulatory inspections, internal audits, or when demonstrating compliance to stakeholders. Having easily accessible and well-documented records contributes to a transparent compliance process and reinforces the integrity of the business’s operations.

 

In an era of increasing regulatory scrutiny, businesses must leverage technology to ensure robust PEP and sanction regulatory compliance. Automated screening solutions, real-time updates, enhanced risk assessment, identity verification, and auditability contribute to more efficient and accurate compliance measures. By harnessing the power of technology, businesses can mitigate risks, protect their reputation, and demonstrate a commitment to responsible business practices. Embracing technology is not only a compliance necessity but also a strategic advantage that drives operational efficiency and helps businesses thrive in today’s complex regulatory landscape.

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