An effective and dynamic partner

Given Australia’s stringent regulatory and audit requirements, Beem required a solution to help it stay compliant while screening high volumes of customers daily.

Previously, the company had struggled with several screening issues that were slowing down customer onboarding times, reducing customer satisfaction. Manual processes, for example, had led to a backlog of alerts, consuming too much analyst time.

To combat this, Beem needed a dynamic solution that offered effective customer screening services suitable for its business and jurisdiction. After searching the market, the firm met with ComplyAdvantage in 2019 and began a long-term partnership. 

“During the vendor qualification process, we were particularly impressed with the search levers, search profiles, and the easy application programming interface (API) integration that ComplyAdvantage offered.”
Jason Backhouse, General Manager Open Payments 

Reducing alert remediation times to increase efficiency 

ComplyAdvantage’s implementation specialists collaborated with Beem from the outset to understand its business model and unique challenges. Once they finished their deep dive, they presented the firm with a bespoke suite of solutions based on their findings.  

Before partnering with ComplyAdvantage, Beem was experiencing high match rates of eight percent. However, after adopting a risk-based approach using ComplyAdvantage’s customer screening and transaction monitoring solutions, Beem reduced its match hit rate to 1.2 percent by December 2023, contributing to a 10 percent increase in its AML program’s efficiency.

Automated workflows via ComplyAdvantage’s RESTful API were also introduced to improve the firm’s overall operational efficiency by freeing analysts’ time. This enabled them to resolve legitimate sanctions hits within one working day, resulting in faster onboarding and improved customer satisfaction.

Beem & ComplyAdvantage: Key benefits in numbers

• Lowered the time taken to clear new customers to within one business day.
• Lowered match hit rate to under 1.2 percent.
• Minimized time to clear new cases.
• Increased overall efficiency by 10 percent. 

Taking new risks

While both parties are pleased with the ongoing success of the partnership, new risks are always emerging. With this in mind, ComplyAdvantage’s customer success and Beem’s compliance teams continuously review their operational efficiency and hold enablement sessions to equip Beem with the latest product and feature releases – creating a positive and sustainable experience for its customers.

“Through our years of partnership, ComplyAdvantage has enabled Beem to perform at the top of our compliance game. Their commitment to excellence and our business allows us to focus on providing a better experience for our customers while maximizing security and trust in our platform and meeting the requirements of our regulators.”
Jason Backhouse, General Manager Open Payments

A collaborative approach, combined with ComplyAdvantage’s dedicated account management and support, has led to a thriving long-term partnership that has helped Beem save time, stay compliant, and continue to scale and grow as a business.

The post Beem boosts analyst efficiency and customer satisfaction with automated workflows appeared first on ComplyAdvantage.

This pace of change creates a significant challenge for financial crime compliance teams, who need to ensure they can process these changes effectively without creating undue friction or missing important new risks. Our annual global compliance leaders survey shows many teams anticipate these pressures. 61 percent of firms said they will be more risk-averse when managing politically exposed persons (PEPs) in the next 12 months by, for example, applying greater due diligence at onboarding and through ongoing monitoring. 

In a challenging year, understanding whether changes to the risk-based approach firms take to PEPs seems reasonable – but only if they have the people and technology in place to do this effectively. In our survey, 73 percent of firms said they must reduce their reliance on manual processes to manage this volume of PEPs. Just one in four said their existing technology could reasonably handle the volume of PEP changes they’re expecting in 2024. 

Put simply, many compliance leaders recognize the unprecedented challenge that 2024 will bring regarding PEP management. But most also acknowledge that they need to change their processes to accommodate these risks. This article will outline five core areas where firms must assess their PEP programs.

#1 Review and stress test approaches to corruption

The predicate crime for money laundering most closely tied to PEPs and their networks is corruption. It’s listed as one of the European Union’s 22 core predicate offenses. It is also one of the national priorities outlined by FinCEN in the US, making it a major priority for regulatory bodies worldwide. 44 percent of financial crime leaders worldwide said tackling corruption is a ‘major priority,’ with a further 44 percent saying it is somewhat of a priority. 

Given the large number of PEP changes, the number of firms treating corruption as a major focus will likely rise through 2024. While there are a range of red flags related to corruption firms should be familiar with, several are notable for their increased risk around elections:

• Using political contributions to influence official actions, win favors, or win lucrative public contracts. 
• Attempting to hide the nature or extent of a party’s relationship with a company it is doing business with. 
• Large or suspicious payments for government services that may benefit the ruling party.
• Transactions occurring in countries or jurisdictions known to be high risk for corruption.

As political leaders seek to influence electors to retain power or hand out favors before an expected loss, any of these red flags above – and more besides – could become more prominent in specific locations. Given the large volume of elections firms will face, compliance teams should plan well ahead, reviewing their business-wide risk assessments, in particular, the jurisdictions they operate in where elections are taking place and specific historical and inherent risks in those locations.

#2 Understand how relevant countries organize their political apparatus 

Inevitably, compliance officers will be most familiar with their home country’s political system and processes. But many often overlook how different systems, legislatures, and power distribution can be, even in countries that may share a common language or a large degree of regulatory alignment.

Data on PEP classifications in ComplyAdvantage’s market-leading, proprietary PEP database illustrates this. For example, the US PEP ecosystem is dominated by local-level officials, reflecting the large volume of elected officials at the state level. By contrast, the UK has a more 50/50 split based on the higher degree of power held by the central government. In Singapore, a small country with a high level of centralized power, almost all PEPs are national. 

Beyond political structures, jurisdictions also define PEPs differently. For example, while ‘once a PEP, always a PEP’ applies in Hong Kong, this isn’t the case in the UK or Australia.

Firms must approach each country they operate in without expecting similar processes or behaviors. Screening and monitoring measures that work in one context may not, for example, apply well in another – either letting PEPs through without additional checks or creating unnecessary friction disproportionate to an individual’s risk. 

#3 Ensure you have multiple technologies in place to conduct comprehensive monitoring

By nature of their roles, PEPs are not simple individuals to screen and monitor, a challenge exacerbated by elections when individuals will take on different responsibilities that may create or eliminate risks. So, how do firms apply unified technology and systems worldwide while allowing for flexibility? A suite of technologies and artificial intelligence (AI) are critical. 

This requires firms to use a range of information from multiple sources. These should include information directly from the customer, information gathered from a customer’s banking activity, adverse media identified through negative news screening, third-party sources, and other behavioral data. Adverse media is an integral part of this mix, especially for enhanced due diligence as part of initial onboarding and ongoing monitoring. Analysts must also ensure they clearly understand the purpose of a customer’s account, the source of their wealth, and funds, including the expected inflows and outflows from that account. 

#4 Develop a comprehensive approach to de-classification a PEP and offboarding

Many financial institutions neglect to develop comprehensive de-classification and offboarding policies, focusing their AML policies largely on onboarding alone. However, it is also essential to consider when – and how – a customer should be offboarded in alignment with a firm’s risk appetite. Regulators have, for example, criticized banks for not offboarding clients with dormant accounts, given the risk this created for clients who should have been offboarded to process transactions. As a result, firms need a detailed process for when clients should be offboarded, including criteria based on risk, to ensure a uniform process across the organization.

Comprehensive onboarding policies are especially critical for PEPs, given their higher-risk status and the likelihood that their roles will change at short notice. Firms must also ensure that where applicable, once a PEP leaves public office (and is considered to no longer hold influence and control), they are de-classified to ensure the right level of due diligence is applied to avoid excessive operational burden (as enhanced due diligence processes are time-consuming and manually intensive.)

#5 Participate in data and information-sharing schemes 

Finally, it’s important to acknowledge that, even with comprehensive onboarding, ongoing monitoring, de-classification, and offboarding processes, there is a limit to the depth and scale of information one firm can amass alone. That’s why public-private data-sharing partnerships are critical for firms to broaden their perspective and more quickly identify emerging risks. This could include, for example, how PEPs in a jurisdiction one firm doesn’t operate in are using digital currencies to evade due diligence measures. Knowledge of such a change upfront may help that firm put efforts in place to detect this behavior among its client base before this activity occurs. 

Our survey suggests firms see great value in public-private partnerships. 56 percent are already involved for data and information sharing purposes, with a further 39 percent intending to join in the next 12 months. Firms not participating in such schemes risk being left behind, with incomplete information and a limited ability to tackle new risks proactively. 

The post Elections 2024: Implications for bribery, corruption, and PEP screening appeared first on ComplyAdvantage.

This article will take a closer look at:

• Who can be considered a PEP;
• The risks banks need to mitigate; and
• What banks should be doing to oversee these relationships.

What is a PEP in banking?

A PEP is anyone who has been appointed to a high-profile position by a government body, usually within the last 12 months. This can include: 

• Ministers of all ranks.
• Heads of government.
• Heads of state.
• Members of parliaments.
• Ambassadors. 
• High-ranking officers in the armed forces.
• Administrators and managers of state-owned enterprises.
• Members of courts and national judicial bodies.
• Those serving on the boards of central banks.

Crucially, PEPs also include the family members of anyone with such positions, their close business associates as well as any beneficial owner of their property.

According to the Financial Action Task Force (FATF), there may be foreign PEPs, domestic PEPs, and those entrusted with prominent functions by state-owned enterprises and international organizations. Notably, any PEP deemed a foreign PEP is simultaneously deemed a de facto domestic PEP in their own country.

In light of this, banks may consider their clients a PEP if:

• They receive funds in retainer form from government accounts.
• Communicate using official stationery from government organizations.
• News reports or conversations suggest they are linked to someone who could be considered politically exposed.

Put simply, if there is reasonably available information that could help identify a client as a PEP – in the public domain, through public registers, or via commercial databases – then regulators expect banks to take additional measures when dealing with them.

The risks associated with PEPs in the banking industry

When working with PEPs, the primary risks are that the proceeds of bribery and corruption can be laundered through banks, and assets from their country of origin can be obfuscated by complex financial misconduct. These clients are considered more risky to work with because of the access they may have to public resources and the influence they often wield over the movement of large sums of money.

Even if they aren’t participating in illicit activities of their own volition, they can often be the target of parties who want to manipulate the outcomes of legislation and contract negotiations.

•  They may try to launder funds acquired illegally through bribery and embezzlement.
• They may participate in financial crimes like wire fraud to hide the source and destination of their funds.
• They may use funds to conduct or hide broader crimes such as extortion and theft.

Given these sizable risks – and the myriad permutations of criminal activity they make possible – banks need to be able to readily identify and investigate any red flags thrown up by politically exposed clients to ensure their organizations aren’t exposed to the risks of economic crime.

The regulatory landscape for PEP management in banks

Even though there isn’t a global definition or regulation that applies to the treatment of PEPs around the world, the 39 member nations of the FATF implement the standards and procedures laid out in the FATF guidance.

More specifically, national legislations and international bodies that lay out rules for the heightened scrutiny expected of PEPs include:

• Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act) of 2006 outlines the identification process banks must undertake for PEPs as well as additional due diligence measures and risk management systems.
• Canada’s Proceeds of Crime and Terrorist Financing Act of 2001 lays out reporting and risk management requirements with domestic PEPs retaining their classification for five years after they leave office and foreign PEPs retaining it forever.
• The Financial Action Task Force of Latin America (GAFILAT) is an intergovernmental organization that oversees the implementation of AML and CTF procedures in 17 Latin American countries across south, central, and North America.
• The Middle East and North Africa Financial Action Task Force (MENAFATF) oversees the implementation of FATF’s 40 recommendations in the region.
• Singapore’s Monetary Authority of Singapore (MAS) Notice 626 similarly requires financial institutions such as banks to apply enhanced due diligence (EDD) of PEPs as well as their relatives and close associates (RCAs).
• South Africa’s Financial Intelligence Centre Act was amended to refer to politically influential people (PIP) to also account for private sector officials who have business dealings with elected officials in public services procurement deals.
• The UK’s Money Laundering Regulations set in 2017 mirror the FATF’s definition and recommendations in important ways, while the Financial Conduct Authority (FCA) and Joint Money Laundering Steering Group publish comprehensive guidance on how to manage PEPs.
• Article 3, Number 9 of the European Union’s Directive 2015/849 sets out the definition of PEPs, and several European nations adhere to the FATF’s recommendations.
• The US’ Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Asset Control (OFAC) implement the regulations set out for ‘foreign officials’ (known elsewhere as PEPs) in the Bank Secrecy Act and the PATRIOT Act with requirements for enhanced due diligence and suspicious activity reports (SAR).

The cost of failing to comply with these regulations and guidelines ranges from financial penalties to reputational damages and even sanctions that place banking organizations on worldwide black and grey lists. In some cases, a bank’s charter may even be threatened. 

Why banks struggle with PEP screening

The process of screening PEPs poses a number of distinct challenges for banks trying to implement the appropriate AML processes:

• Customer onboarding processes can take longer when clients need to undergo EDD. This is particularly problematic for the customer experience when controllers have to oversee many false positives, and compliance officers have to rely on low-quality alerts, old data, and flat file uploads.
• Operationally, EDD activities rely on the integration of multiple data feeds, case management systems, and customer relationship management (CRMs). Without the appropriate connections, workflows become slow, and organizations struggle to report suspicious activity in time.
• Differences in regulations between different countries can also cause a lack of consistency in processes across branches. For instance, while domestic PEP screening isn’t mandatory in the United States, it is required in most other countries around the world. Banks need to be able to comply with local requirements.

How banks can mitigate the risks of working with PEPs

There are a number of best practices banks can adopt to better manage and screen PEPs in a way that tackles the very real risks of working with them while still preserving the customer experience.

Central to these efforts is establishing protocols for EDD that can be applied either to all PEPs as well as their relatives and close associates or, at the very least, to those PEPs known to pose a higher degree of risk.

• Use higher-quality data: Banks need to be able to maintain their own PEPs list based on a synthesis of multiple different data sources because it isn’t always apparent which clients require PEP status.
• Augment the screening process: Banks should also be screening for adverse media coverage and negative news stories which might alert them to hidden risk.
• Implement a risk-based approach: Banks need to be able to offer different degrees of screening and due diligence to PEPs that pose different degrees of risk. This should vary based on the type of PEP and the jurisdiction they’re from. Crucially, banks should be monitoring this status on an ongoing basis.
• Invest in training: Ultimately, banks need to invest heavily in giving their compliance officers the training and education they need to appropriately analyze alerts and act on novel information. It means investing to improve their workflow so they can operate with confidence at speed.

Advanced PEP screening solutions for banks

To effectively and efficiently manage screening PEPs – and more broadly, manage the challenge of anti-money laundering in banking – firms need access to intelligent automation and workflow solutions. Key features of an advanced PEP screening solution to look out for include:

• Access to real-time, global data with reliable processes that use machine learning to monitor more than 7000 structured data sources for PEPs, their relatives, and their close associates.
• Structured entity-based profiles that automatically capture changes in risk so they can be put through a formal process of approval and control that’s intuitive and quick for compliance officers.
• Sophisticated, configurable matching technology that makes it easier to identify typos and changes while also providing the ability to configure screening parameters based on a firm’s risk-based approach.

The post Understanding PEPs in banking appeared first on ComplyAdvantage.

The government’s request for the review came amid reports that some financial institutions (FIs) are restricting the access of PEPs and their associates to financial services. 

What will the FCA’s review include?

Although the FCA cannot modify the regulations that establish the PEPs framework, the regulator’s review will examine how firms:

• Apply the definition of PEPs to individuals.
• Conduct appropriate risk assessments for UK-based PEPs, their family members, and close associates.
• Implement enhanced due diligence (EDD) and ongoing monitoring procedures according to the level of risk.
• Decide whether to reject or close accounts for PEPs, their family members, and close associates.
• Communicate effectively with their PEP customers.
• Continuously review and adjust their PEP controls to ensure they remain adequate.

The FCA will present its findings by June 30, 2024. If the review discovers any significant shortcomings in the procedures of any firm under assessment, the FCA will take swift corrective measures.

In a statement, Executive Director of Markets at the FCA, Sarah Pritchard, emphasized that current PEP regulations align with global standards and aim to prevent corruption, maintain a clean financial system, and curb financial crime. Pritchard also stressed the importance of implementing these rules fairly and proportionately so they do not hinder public servants or their families. The FCA has already convinced some firms to improve their practices, and the upcoming evaluation will help identify whether additional guidance is necessary.

PEP risk management best practices

Firms looking to establish a robust PEP screening process that will bolster their ability to combat financial crime risks and safeguard their operations with confidence should consider the following principles:

• Prioritize high-quality data: The utmost importance lies in the quality of data that firms collect about their customers. This data quality directly translates into the ability to swiftly and accurately determine PEP status.
• Supplement a standard PEP screening process: Augmenting the PEP screening process with additional checks, such as adverse media screening, provides an extra layer of scrutiny, enhancing the overall risk assessment.
• Take a risk-based approach: Customizable search profiles should be used to apply different search settings to groups of customers based on a firm’s business model and risk appetite.
• Reevaluate after changes in PEP status: Changes to PEP status can occur when the entity’s mandate expires or they resign and the entity is removed from the source website. To keep up with these changes, firms should ensure their screening solution utilizes a real-time risk database managed by teams of global data experts who can review and edit problematic profiles.
• Ongoing monitoring: As PEP legislation evolves over time, businesses must proactively monitor regulatory trends to understand their implications and adapt their processes accordingly, ensuring ongoing adaptability and compliance.

For a more comprehensive look at how firms can fine-tune their PEP screening practices, read our article on the topic.

Key takeaways

As the FCA completes its review, compliance teams should be on the lookout for its updated guidance within the year. In the meantime, firms can consult existing guidance on a risk-based approach to PEPs, including:

• The Wolfsberg Group’s PEP guidance.
• The FCA’s 2017 PEP Guidance and 2023 Financial Crime Guide.
• The Joint Money Laundering Steering Group’s 2023 financial sector guide. 

Additionally, to learn more about ComplyAdvantage’s PEP data collection process and how quality data is secured, explore some of the related content below:

• The Lifecycle of a PEP: From Identification to Removal.
• How ComplyAdvantage Defines and Classifies a PEP.
• PEP Data Quality: The 12-Eye Review Process.

The post The FCA initiates its mandated review of how firms are handling politically exposed persons appeared first on ComplyAdvantage.

The Law on Transparency

The legislation regarding anti-money laundering (AML) in France, as in much of Europe, is meticulously structured to encompass various forms of illicit activities. This includes the law no. 2013-907 of October 11, 2013, commonly known as the “Law on Transparency,” which aims to promote transparency and combat corruption in public life in France. 

The law covers a wide range of elements from asset and interest declarations to whistleblower protection and transparency in the lobbying industry. By upholding ethical standards and ensuring the integrity of public officials, the Law on Transparency reflects France’s commitment to fostering an open and accountable public administration.

The impact on PEP definitions

In March 2023, the law was updated through the Order of March 17, 2023, which established the list of national functions. While the changes were minor, they directly impacted the definition of PEPs. To fully comprehend these alterations and their importance for financial institutions (FIs) complying with AML regulations, it is essential to examine the previous legislation and its functioning. 

The previous version of the Law of Transparency provided a limited list of public functions subject to its regulation. This list included:

• High-level state executives.
• Political party leaders.
• Members of parliament.

The law’s scope was extended in its third section to include individuals responsible for State-Owned Enterprises (SOEs). 

Nonetheless, acknowledging the varying AML risks associated with different institutions, the French lawmakers imposed certain limitations. For example, only local SOEs directly or indirectly owned by the French government with annual revenue of at least €10 million fell under the purview of the Law of Transparency. This recognition illustrated that not all SOEs posed a risk to the state and, thus, required less stringent controls and regulations. This remained the case until March 2023.

The changes introduced by the Order of March 17, 2023, further relaxed these regulations by increasing the annual revenue cap to €50 million. This demonstrates a lower risk appetite of French regulators and a greater willingness to extend trust to local businesses with state involvement. 

Additionally, the decree expanded the Law on Transparency to include other political parties operating in France but without a strong presence in the French parliament. This move was aimed at preventing illicit funding for political parties with representative bodies in regions like French Guiana or Martinque, where transparency and oversight may be lacking. 

Next steps

While the decree primarily affects the definition of PEPs in relation to local SOEs and foreign political parties, other aspects of the legislation remain unchanged. To allow companies sufficient time to adapt to the new regulations concerning local SOEs, the French government will enact these amendments starting November 1, 2023. 

Businesses that engage in screening processes need not worry if they have a reliable partner that can thoroughly examine the fine print and ensure compliance with the updated AML regulations. To learn more about ComplyAdvantage’s PEP data collection process and how quality data is secured, read some of the related content below:

• The Lifecycle of a PEP: From Identification to Removal
• How ComplyAdvantage Defines and Classifies a PEP
• PEP Data Quality: The 12-Eye Review Process

The post French AML legislative changes: Updates to the Law on Transparency and its impact on PEP definitions appeared first on ComplyAdvantage.

In this article, Madalina Morar, International Affairs Research Analyst at ComplyAdvantage, explains the company’s internal review process regarding its PEP data, highlighting the work that goes on behind the scenes before a PEP profile appears on the user’s platform. 

Data quality checks

From identifying a PEP to the point where the entity is searchable on the ComplyAdvantage platform, two main processes occur:

1. The international affairs research analysts (also known as the IARA team) research and select institutions and PEP-relevant positions.
2. The data strategists team collect the data and ensure it is regularly updated. 

Within these two processes, a series of inbuilt quality checks are implemented to ensure that the data is comprehensive, robust, and provides the best risk insights.

Each review starts with an audit of existing data for the researched jurisdiction. This includes the evaluation of existing data and setting the parameters of the research based on the company’s internal taxonomy. 

PEP categorization

Following this, the researcher completes a background search on the governmental structure of the jurisdiction and maps it according to the ComplyAdvantage taxonomy. The taxonomy is structured in four main pep-classes based on the FATF definition: 

Once the researcher has validated the relevance of the institution, where it belongs in the ComplyAdvantage taxonomy, and which public positions within that institution are PEP-relevant, a different researcher reviews the findings. 

At the end of the review process, one of the team members reviews the research for the jurisdiction in its entirety to make sure the coverage is comprehensive.

Data collection

During the data collection stage, the data strategy team utilizes page scraping tools to create individual scrapers that gather data from webpages identified by the research team. While one data strategist prepares the scraping agent, two other analysts review the data quality to ensure the accuracy of extracted positions and the comprehensive collection of all relevant data points, such as a photo, date of birth, and start date (if available). 

Monitoring information sources

Regarding source websites, the vast majority are primary sources, i.e., the information is taken from the website of the researched institution. If not available, other official sources such as governmental websites or aggregate governmental transparency platforms are also reliable sources. An important consideration in choosing a website for scraping is the possibility of scraping it again in the future in a consistent manner so the latest data is always utilized. In a limited number of cases, especially for countries with lower levels of transparency, the IARA team also retrieves PEP information from press releases and appointment decrees.

The 12-eye review process

Once the collection process has been completed, scrapers are scheduled to run automatically at preset frequencies. Data strategists and researchers will only intervene when:

• The structure of the website changes.
• PEPs can no longer be found on the page
• Human input is otherwise required. 

In each case, every new ingested source is reviewed by no less than six people from the research and data strategy team, reducing the risk of human error. If the automated scraping tool is reviewed due to changes on the website, it will be handled by an additional one or two people resulting in further quality checks.

On top of regular automated updates on sources, the researchers team monitors the national level parliamentary and presidential elections, appointments of cabinets, cabinet reshuffles, coup d’etats, and other changes in the composition of national level top legislative and executive bodies. Once the new PEPs are published, the IARA team updates ComplyAdvantage’s database within the following 24 hours.

The post PEP data quality: ComplyAdvantage’s 12-eye review process explained appeared first on ComplyAdvantage.

In this article, Madalina Morar, International Affairs Research Analyst, explains how PEP data is collected by ComplyAdvantage, highlighting the seven steps that are involved from initial PEP identification right through to removal. 

The ComplyAdvantage PEP data collection process explained

1. Research local legislation

Since there is no universal definition of a PEP, data ingestion starts with research into local legislation. At ComplyAdvantage, a dedicated research team, called the International Affairs Research Analysts (or IARA), is utilized to perform an in-depth analysis of the legislation in each country.

2. Match requirements to our internal taxonomy

Local requirements are then compared against our internal inclusion criteria. This step is important because each country has its own peculiarities, and getting acquainted with local legislation helps our team to standardize the company’s coverage by matching it to our internal taxonomy. It also provides us with the ability to ensure consistency and predictability across all of our data.

Our team developed an internal classification system to help our customers better understand the risk level of each PEP position that we collect. This is something that sets ComplyAdavantage apart from other data providers as it allows for a quicker analysis on the part of the customer while onboarding new users.

3. Check existing data

Next, we consider the existing data we have for that jurisdiction. Since we don’t want to duplicate data, it is important to check what coverage we already have. This also provides us with the ad-hoc opportunity to double-check the most relevant data sections for each jurisdiction (we have steps and processes in place to periodically check them as well).

Depending on the type of improvement project we are undertaking, we then search for and identify each institution or company relevant to the jurisdiction. A member of the IARA team evaluates each institution to conclude which leadership positions are considered PEPs, in line with the jurisdiction’s legislation and our internal classification.

Most of the time, each jurisdiction comes with additional challenges, most often varying languages and scripts. We have found that the best approach is to tackle each country using its official language and script to provide the highest chance for a correct match, avoiding any translation errors.

4. Conduct a four-eyes check

After a research project is finished, another member of the IARA team reviews the resulting documentation for possible errors or missing information. This part of the process ensures that human error is corrected and provides an extra layer of quality assurance.

5. Ingest data from the source website

For each identified institution, we scrape and store the data available on the source website (the website displaying the best version of the data we are looking for, coming from official sources, covering as many entities as possible with the most data points). 

This process includes several checks along the way to ensure the highest data quality possible. At this point, if any of our customers are monitoring a name we are introducing as PEP, they will be notified of this additional information.

6. Enrich PEP profiles

Thanks to our engineering team, after initial data ingestion, we are able to enrich each new PEP profile with further information available through various search engines. These data points help to make our PEP profiles easier to differentiate, bringing further value to our customers.

The unique structure of our data gives us the ability to update it on a regular basis, as well as intervene with corrections when necessary. Updates are generated through regular automated checks of the source website and specialized teams correct any errors. We have over 40,000 sources checked this way. This is a process that allows us to send notifications to our customers whenever a monitored PEP has a change on their profile, (be it a resignation or an additional PEP position) that could mean the modification of their PEP score.

7. Update profiles to reflect status changes

As soon as the websites we collect data from are updated with new information, we can reflect the changes quickly (prioritizing the most high-risk sources) with minimal human intervention as we implement high quality checks and balances during data ingestion. The teams we have invested in to make our data structures possible work tirelessly to deliver to the highest standards our customers have become accustomed to.

PEP removal can occur when the entity’s mandate expires, or they resign and the entity is removed from the source website. When this happens, we reflect it in our database by adding a ‘removal date’ tag to the PEP position on our platform.

Enhance the PEP screening process 

For compliance teams looking to enhance their PEP screening process, the following principles should be considered: 

• Data quality: The utmost importance lies in the quality of data that firms collect about their customers. This data quality directly translates into the ability to swiftly and accurately determine PEP status.
• Global reach: A truly comprehensive PEP screening process encompasses screening customers against a vast array of live data sources, spanning international, regional, local, and proprietary channels.
• Risk-based approach: Customizable search profiles should be used to apply different search settings to groups of customers based on a firm’s business model and risk appetite.
• Supplementary screening: Augmenting the PEP screening process with additional checks, such as adverse media screening, provides an extra layer of scrutiny, enhancing the overall risk assessment.
• Continuous monitoring: As PEP legislation evolves over time, businesses must proactively monitor regulatory trends to understand their implications and adapt their processes accordingly, ensuring ongoing adaptability and compliance.

By embracing these guiding principles and key considerations, FIs can establish a robust and efficient PEP screening process, bolstering their ability to combat financial risks and safeguard their operations with confidence.

The post The lifecycle of a PEP: From identification to removal appeared first on ComplyAdvantage.

Therefore, maintaining and improving data quality is essential for robust PEP screening and effective risk management. This article explores how ComplyAdvantage defines and classifies a PEP, helping firms stay compliant when working across multiple jurisdictions with regulations that vary on who is, and who isn’t, considered a PEP. 

FATF PEP categories

The Financial Action Task Force (FATF) defines a PEP as an individual who is or has been entrusted with a prominent public function. Due to their position and influence, it is recognized that many PEPs are in positions that can be abused for the purpose of committing money laundering (ML)  and related predicate offenses.

The FATF distinguishes between three main categories of PEPs:

1. Foreign PEPs: Individuals who are or have been entrusted with prominent public functions by a foreign country, for example: 
   • Heads of State or of government.
   • Senior politicians.
   • Senior government.
   • Judicial or military officials.
   • Senior executives of state-owned corporations.
   • Important political party officials.
2. Domestic PEPs: Individuals who are or have been entrusted domestically with prominent public functions, such as those listed above.
3. International organization PEPs: Persons who are or have been entrusted with a prominent function by an international organization. This may refer to members of senior management or individuals who have been entrusted with equivalent functions, i.e., directors, deputy directors, and members of the board or equivalent functions.

ComplyAdvantage’s PEP taxonomy

One of the key challenges PEP data providers face is the lack of a universal definition of a PEP. The ComplyAdvantage taxonomy is the result of the analysis of more than 40 anti-money laundering (AML) regulations worldwide. This includes:

• National regulations
• By-laws
• International guidance from:
  • The FATF
  • Wolfsberg Group
  • The European Union
  • The World Bank

It aligns with the FATF recommendations as it links PEP status and risk to the level of influence that a particular public function holds. 

In contrast with the FATF approach, ComplyAdvantage’s database does not use a domestic versus foreign label. This is due to the fact that a domestic PEP in Russia will be a foreign PEP in India. Instead, ComplyAdvantage’s International Affairs Research Analysts (IARA) team label each entity relative to the jurisdiction where their PEP status derives from. This ensures the data is presented objectively and neutrally.

ComplyAdvantage categorizes PEPs in four classes according to the scope of their influence: 

• National
• International
• Regional
• Local

Each PEP class contains several taxonomies that are purposely granular, enabling analysts to select the relevant PEP categories for countries with varying levels of robust regulations. 

“Our coverage of national requirements for Canada and Germany has been acknowledged in external audits of our PEP data. We have achieved that for over 30 jurisdictions and are currently working to increase that number.”
– Alia Mahmud, Regulatory Affairs Practice Lead at ComplyAdvantage

pep-class-1

The first PEP class contains all taxonomies with national-level PEPs such as:

• National legislatures
• National cabinets
• Central banks
• Armed forces, police, fire service, and intelligence agencies

pep-class-2

The second PEP class includes:

• Members of regional governments, parliaments, and judiciary.
• Senior officials and functionaries of international and supranational organizations and diplomatic missions.

pep-class-3

The third PEP class related to:

• National level state-owned enterprises.
• Public sector institutions under regional level administration (eg regional agency, regional state-owned enterprises).

pep-class-4

And the fourth PEP class contains:

• Mayors and members of local, county, city, and district assemblies.
• Senior executives of local governmental bodies (agencies, state-owned businesses)
• Judges of local courts.

Subdivided taxonomies

To allow for differences between governance structures, such as federal versus unitary, and for a finer distinction between various institutions, ComplyAdvantage subdivides its taxonomies into institution types, where necessary. 

For example, the taxonomy of ‘national agencies’ distinguishes between an agency under the authority of a ministry, an independent agency, or a specialized agency, such as a public prosecution agency or a court of accounts. 

In ComplyAdvantage’s database, institution types are visible in the search results and serve as an additional data point for the users in their risk-based approach (RBA) assessment.

Advantages of ComplyAdvantage’s PEP taxonomy

Increase accuracy and reduce false positives

The taxonomy is designed to help users reduce false positives and negatives by narrowing down the screening to a particular category. 

If a user screens against national level PEPs from a certain country, they will get all the political positions from that country that influence events at a national scale. If a user screens against international level PEPs, they will get all the PEPs from that country whose actions and decisions have impact on multiple countries. Each search result will render the institution type and political position of the PEP. 

Consistent and predictable coverage

The unique value added consists in attributing a standardized set of definitions to a range of political and governance systems, which help the analyst assess their clients’ risk vis-a-vis the relative level of power they hold. 

For example, the Superior Court of Justice of the State of Mexico differs in terms of PEP risk from Malaysia Superior Courts Judges. The former is a regional-level court in one of the 32 federal entities in Mexico. Hence we attribute it to the institution type Regional Supreme Court and pep-class-2. The latter is a national-level institution, and the judges will have pep-class-1 risk category with institution type National High Court.

This standardized model provides consistent and predictable coverage across jurisdictions. It also ensures sufficient granularity to understand the level of influence a PEP might have depending on the institution type and how it fits into the governance structure of a country. The information on the jurisdiction where the person is a PEP is a starting point for an individual analysis of how that jurisdiction fits into a firm’s risk appetite and cascades down to the risk level of the PEP: e.g., a PEP from a country on the FATF grey list may or may not warrant additional scrutiny.

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