Financial Crime World

FATF Guidance on Politically Exposed Persons (PEPs) - Enhanced Due Diligence Measures for Higher-Risk Customers

Introduction

The Financial Action Task Force (FATF) has issued guidance on enhanced due diligence measures that financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) must take when dealing with higher-risk customers who are Politically Exposed Persons (PEPs).

Recommendation 12: Enhanced Due Diligence Measures for Higher-Risk PEP Customers

According to FATF Recommendation 12, financial institutions and DNFBPs must take reasonable measures to determine if a customer or beneficial owner is a PEP. This includes conducting enhanced due diligence and monitoring of the business relationship.

Risk Assessment

Financial institutions and DNFBPs must assess the risk of each customer based on data collected under Recommendation 10. If the assessment indicates that the customer presents a higher risk, the institution or DNFBP must take consistent measures to mitigate those risks.

Factors to Consider in Risk Assessment

When assessing the risk of a PEP customer, financial institutions and DNFBPs must consider the following factors:

  • Country risk factors
  • Product and service risks
  • Delivery channel risks
  • Nature of the public function held by the PEP (e.g. level of seniority and access to public funds)

Enhanced Due Diligence Measures

If the risk assessment indicates that the business relationship with a PEP is higher-risk, financial institutions and DNFBPs must take consistent measures to mitigate those risks, including:

  • Obtaining additional information on the customer’s source of wealth and funds
  • Conducting enhanced monitoring
  • Identifying patterns of transactions that warrant additional scrutiny

No Enhanced Due Diligence Measures Required for Low-Risk PEP Customers

If the risk assessment indicates that the business relationship with a PEP is normal or low-risk, no enhanced due diligence measures are required.

Jurisdiction-Specific Considerations

Jurisdictions may have different approaches to assessing the risks associated with domestic/international organization PEPs. Therefore, it is essential for financial institutions and DNFBPs to undertake their own assessment of the risks associated with these customers.

Conclusion

The FATF guidance emphasizes the importance of implementing robust due diligence measures when dealing with higher-risk PEP customers. Financial institutions and DNFBPs must take a risk-based approach, considering multiple factors, to determine the level of enhanced due diligence required for each customer.

Key Takeaways:

  • Financial institutions and DNFBPs must take reasonable measures to determine if a customer or beneficial owner is a PEP.
  • Enhanced due diligence measures are required when dealing with higher-risk PEP customers.
  • Risk assessments must consider multiple factors, including country risk factors, product and service risks, delivery channel risks, and the nature of the public function held by the PEP.
  • Jurisdictions may have different approaches to assessing the risks associated with domestic/international organization PEPs.