In banking, PEP stands for Politically Exposed Person.
Understanding Politically Exposed Persons (PEPs)
A Politically Exposed Person (PEP) is someone who holds a prominent public function. Because of their position and influence, PEPs are considered to be at a higher risk for involvement in bribery and corruption. Banks and other financial institutions are required to conduct enhanced due diligence on PEPs to mitigate these risks.
According to a November 2021 document titled "POLITICALLY EXPOSED PERSONS", banks need to "evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as politically exposed persons (PEPs)."
Key Aspects of PEPs in Banking
Here are some key aspects related to PEPs that are relevant in the banking sector:
- Risk Assessment: Banks must assess the potential risks associated with doing business with PEPs.
- Enhanced Due Diligence: Financial institutions must perform more thorough checks on PEPs than they would on regular customers. This includes understanding the source of their wealth and the nature of their transactions.
- Monitoring: Banks must continuously monitor the transactions of PEPs to detect any suspicious activity.
- Compliance: Banks are required to comply with regulations designed to prevent money laundering and corruption related to PEPs.
- Examples: Heads of state, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, and important political party officials. Close family members and associates are also considered PEPs.
