How companies should screen for PEPs and RCAs
RegTech firm Sentinels recently highlighted how companies should screen for politically exposed persons and relatives and close associates.
According to Sentinels, PEPs and RCAs are difficult to manage for even the most advanced AML policies. It argued that there is a “delicate balance” between the risk they pose and the positive business they can bring to a company.
Many individuals classified as PEPs and RCAs are often subject to sanctions by central bodies such as the UN and the EU. For example, PEPs normally hold positions such as heads of government and their ministers, ambassadors, central bank board members, top executives of state-owned companies and mayors to name a few.
Many of them may or may not be on sanctions lists, but they must be identified as PEPs by any company doing business with them given their proximity to power and the potential for illicit financial activity that comes with their positions. Many PEPs have a high risk of corruption and financial crime.
RCAs, meanwhile, are the close relatives of PEPs. These individuals have no power themselves, but because of their proximity to PEPs, they can be used as intermediaries for illegal activity.
RCAs may include spouses and partners, siblings, aunts, uncles and cousins, indirect family members and parents and children of PEPs.
Sentinels noted, “PEPs are a broad group with wide-ranging levels of influence, for example the level of power a head of government has completely surpasses that of an ambassador. To facilitate placing PEPs and RCAs in the correct risk profile, it is usually three broad categories that regulated companies can use to understand the risk-based approach that should be used for each.
Many financial institutions must “score” PEPs according to three risk categories. These are high risk – which includes heads of state and government – medium risk, which may include ambassadors, senior military officials and regional government officials. Low-risk PEPs, meanwhile, can include mayors and members of county, city and district assemblies.
Sentinels added, “It is important to recognize that PEPs often shift in terms of risk and classification. PEPs who lose their political position, due to an election or other means, may need to be declassified. But losing their position does not automatically declassify a PEP. Indeed, there is no uniform position on when to declassify PEPs, with some businesses choosing never to do so.”
Why do PEPs and RCAs need to be screened? The Sentinels concluded: “Companies need to be aware of PEPs and RCAs because of the nature of financial crime and how often they forcefully use family and close associates to help commit these crimes. Whether a client is a PEP or RCAs should be made clear at the start of any association with the business and their activity should be monitored continuously to ensure that RCAs are not used to evade sanctions by transferring money to sanctioned PEPs or similar crimes.”
Read the entire post here.
Sentinels recently appointed Adrian Jenkins to the role of Chief Commercial Officer.
According to Sentinels, the appointment of London-based Jenkins will help the company’s expansion in the UK, which is a dominant financial hub and hotbed of FinTech innovation.
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