The Challenge of PEPs
Download the report
Download the report
Looking for weekly fincrime insights sent straight to your inbox?
Subscribe to The Briefing
Ready to speak to a member of our sales team?
Request a Demo
Trusted by
A comprehensive and practical look at the PEP landscape and how UK firms should navigate it.
The Challenge of PEPs: A Comprehensive Guide
Download your copy to explore:
of UK firms in our survey indicated that detecting and preventing corruption is a strategic priority for their organization’s financial crime compliance function.
99%
%
Additionally,
Looking for weekly fincrime insights sent straight to your inbox?
Subscribe to The Briefing
Ready to speak to a member of our sales team?
Request a Demo
The Challenge of PEPs: A Comprehensive Guide
Download the report
Trusted by
Despite being a core component of any risk management program, politically exposed persons (PEPs) remain inconsistently defined and difficult to screen for effectively.
Given the sheer volume of elections happening worldwide in 2024, the manual processes that many financial institutions (FIs) currently rely on will become overwhelmed, calling for a more sustainable approach to PEP risk management.
In December 2023, the UK government announced changes to the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs), which came into force on January 10th, 2024. These changes encourage regulated firms to take a risk-based approach when dealing with domestic PEPs.
Under the new regulations, banks and other regulated firms must apply lower levels of enhanced due diligence (EDD) to domestic PEPs than non-domestic PEPs unless other higher risk factors are present.
2024: The year of the PEP
How are firms reacting?
Given these regulatory updates and the influx of PEP status changes worldwide, firms are bracing for a year of uncertainty.
In our 2024 global compliance survey, we asked 600 senior compliance professionals how they expected their organization’s risk appetite related to PEPs to change in the next 12 months. The results showed that UK firms plan to be more risk-averse than the global average.
of UK firms in our survey indicated that detecting and preventing corruption is a strategic priority for their organization’s financial crime compliance function.
99%
%
Additionally,
However, adopting a more risk-averse stance towards PEPs to combat customer screening pressure can lead to de-risking challenges. The Financial Conduct Authority (FCA) is reviewing this practice, with a report to be published by June 2024.
In the meantime, compliance staff will benefit from a rigorous understanding of the definitions, policies, and processes they have in place for PEP screening to avoid unnecessarily terminating or restricting commercial relationships.
Risk-averse ≠ de-risking
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas vel ligula sapien. Phasellus posuere elit eget odio vulputate, vitae sodales sapien semper. Nam sed ultrices odio. Vestibulum condimentum quam eu tellus blandit porta. Vestibulum sagittis ipsum ac eros venenatis.
“
”
A new approach to PEP management is needed
of UK firms said they need to reduce their reliance on manual processes to reassess the volume of PEPs.
Utilizing quality PEP data and technology can assist in achieving this goal.
78%
%
In addition to updating customer risk assessments to ensure the appropriate levels of due diligence are consistently conducted,
Accurate and reliable information is the bedrock of effective PEP risk management, as misidentifications or omissions can have severe legal and reputational consequences.
Ensuring PEP data is reliable and current can mitigate de-risking and facilitate appropriate due diligence based on PEP classification and status.
What quality PEP data looks like
At ComplyAdvantage, once our data analysts collect information on PEP-relevant positions and ensure it is regularly updated, our researchers complete a background search on the governmental structure of the jurisdiction and map it according to the ComplyAdvantage taxonomy. Our taxonomy is structured in four main PEP-classes based on the FATF definition and recommendations:
Click the arrows to learn more
However, mapping a standardized taxonomy like the example above to PEP data in countries worldwide shows that a one-size-fits-all approach to PEP detection is not a sustainable option. What works in a firm’s home country may not apply overseas in jurisdictions with different political and judicial systems.
To illustrate this, see how ComplyAdvantage’s proprietary UK PEP data compares to two other jurisdictions below.
Managing PEP data by country
How to manage PEP risk levels.
Red flags and risks associated with PEPs.
Time limits on PEP status.
How ComplyAdvantage classifies PEPs.
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 relates to:
National level state-owned enterprises.
Public sector institutions under regional level administration (eg regional agency, regional state-owned enterprises).
PEP Class 4
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.
Hover to learn more
Insights from our database
UK
US
Singapore
International Level PEP
National Level PEP
Regional Level PEP
Local Level PEP
Entities:
4.88%
Entities:
14.85%
Entities:
3.15%
Entities:
64.54%
Entities:
94.31%
Entities:
19.43%
Entities:
4.04%
Entities:
1.03%
Entities:
60.33%
Entities:
26.54%
Entities:
1.52%
Entities:
5.4%
PEP classifications in the UK
Cabinet secretaries
Central bank
Executive
Head of state
Judiciary
Legislature
National agencies / regulatory authorities
Political parties board members
State security
Vice ministers / deputy ministers / shadow cabinet
National level – Class 1
State-owned enterprises
National level – Class 3
PEP classifications in the UK
Intergovernmental organizations
International representatives
International level – Class 2
PEP classifications in the UK
Executive power
Legislative power
Local level – Class 4
PEP classifications in the UK
Judiciary power
Regional level – Class 2
PEP classifications in the US
Cabinet secretaries
Central bank
Executive
Head of state
Judiciary
Legislature
National agencies / regulatory authorities
Political parties board members
State security
Vice ministers / deputy ministers / shadow cabinet
National level – Class 1
State-owned enterprises
National level – Class 3
PEP classifications in the US
Intergovernmental organizations
International representatives
International level – Class 2
PEP classifications in the US
Executive power
Legislative power
Local level – Class 4
PEP classifications in the US
Executive power
Judiciary power
Legislative power
Regional level – Class 2
PEP classifications in Singapore
Cabinet secretaries
Central bank
Executive
Judiciary
Legislature
National agencies / regulatory authorities
National level – Class 1
State-owned enterprises
National level – Class 3
PEP classifications in Singapore
International representatives
International level – Class 2
PEP classifications in Singapore
Executive power
Legislative power
Local level – Class 4
RegTech Solutions
RegTech Solutions (formerly SQA Consulting) has rated ComplyAdvantage's PEP data coverage as 'Excellent.' Our benchmarking shows ComplyAdvantage's name-matching efficiency and effectiveness are market-leading, with name-matching rates of close to 100%. This is very good, almost exceptionally good, a little higher than we often see for exact name tests.
“
”
More risk-averse (e.g. greater due dilligence at onboarding and ongoing monitoring)
79%
79%
61%
61%
Global
UK
No change
12%
19%
12%
19%
Global
UK
Less risk-averse (e.g. reduced due dilligence requirements)
7%
19%
7%
19%
Global
UK
We are not accepting PEP clients
1%
1%
1%
1%
Global
UK
Global
UK
PEP classifications in Singapore
Judiciary power
Regional level – Class 2
A comprehensive and practical look at the PEP landscape and how UK firms should navigate it.
Download the report
of UK firms said they need to reduce their reliance on manual processes to reassess the volume of PEPs.
Utilizing quality PEP data and technology can assist in achieving this goal.
78%
%
In addition to updating customer risk assessments to ensure the appropriate levels of due diligence are consistently conducted,
A new approach to PEP management is needed
Click the bars to learn more
PEP classifications in Singapore
Political party board members
Ruling royal family
State security
Vice ministers / deputy ministers / shadow cabinet
PEP classifications in Singapore
PEP classifications in Singapore
PEP classifications in Singapore
Political party board members
Ruling royal family
State security
Vice ministers / deputy ministers / shadow cabinet
Cabinet secretaries
Central bank
Executive
Head of state
Judiciary
Legislature
National agencies / regulatory authorities
Political parties board members
State security
Vice ministers / deputy ministers / shadow cabinet
National agencies / regulatory authorities
Political parties board members
State security
Vice ministers / deputy ministers / shadow cabinet
Cabinet secretaries
Central bank
Executive
Head of state
Judiciary
Legislature
Tom Keatinge I Director, Centre for Finance and Security, RUSI
Download the report
There is another risk dimension to the PEP community that is increasingly emerging and which, in 2024’s fiesta of democracy across the globe, poses perhaps an even greater risk.
In these days of significant geopolitical stress, finance has emerged as a frontline in the growing confrontation between democracies and authoritarian states. Consider the inducements and other forms of influence payment revealed, for example, to be allegedly offered to MEPs in Brussels. These payments are not made to win lucrative contracts or confound legislation a business might find unhelpful. They are made to secure favourable treatment of states – or worse, co-opt a politician in a position of power to work in another state’s interest.
State threats are on the rise, and democracy is under attack. The risks posed by PEPs for the private sector are only going get higher.
“
”
There is another risk dimension to the PEP community that is increasingly emerging and which, in 2024’s fiesta of democracy across the globe, pose perhaps an even greater risk.
In these days of significant geopolitical stress, finance has emerged as a frontline in the growing confrontation between democracies and authoritarian states. Consider the inducements and other forms of influence payment revealed, for example, to be allegedly offered to MEPs in Brussels. These payments are not made to win lucrative contracts or confound legislation a business might find unhelpful. They are made to secure favourable treatment of States – or worse, co-opt a politician in a position of power to work in another State’s interest.
State threats are on the rise, and democracy is under attack. This risks posed by PEPs for the private sector is only going get higher.
“
”
Tom Keatinge I Director, Centre for Finance and Security, RUSI