Financial Crime World

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Managing Politically Exposed Persons (PEPs) Risks in Conventional Banks

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The Central Bank of Bahrain Rulebook Volume 1: Conventional Banks provides guidelines for conventional bank licensees to identify, assess, monitor, manage, and mitigate Money Laundering/ Terrorist Financing (ML/TF) risks. This article summarizes the key recommendations and guidelines related to the possibility that PEPs are involved regarding the ownership of a bank.

Risk Assessment

A conventional bank licensee must ensure that it takes measures to identify, assess, monitor, manage, and mitigate ML/TF risks to which it is exposed. The risk assessment should be properly documented, regularly updated, and communicated to senior management.

Factors to Consider

  • Countries identified by credible sources as not having adequate AML/CFT systems or providing funding or support for terrorist activities
  • Nature, scale, diversity, and complexity of the business, products, and target markets
  • Products, services, and transactions that inherently provide more anonymity or ability to pool underlying customers/funds

Assessing Customer/Investor Risk

The conventional bank licensee must assess customer/investor risk based on various factors, including:

  • Customer/Investor Profile: The nature, scale, diversity, and complexity of its business, products, and target markets.
  • Transaction Type: Transactions that inherently provide more anonymity or ability to pool underlying customers/funds.

To effectively manage PEP-related risks, a conventional bank licensee should:

Implement Effective Customer Due Diligence (CDD) Processes

  • Identify and verify the identity of customers, including PEPs.
  • Assess the risk associated with each customer, including PEPs, based on various factors such as their business activities, financial situation, and level of influence.
  • Enhanced CDD and ongoing monitoring requirements
  • Provide training to staff on identifying and managing PEP-related risks.
  • Regularly review and update the risk assessment and risk management processes to ensure they remain effective in mitigating PEP-related risks.

By following these recommendations and guidelines, a conventional bank licensee can effectively manage PEP-related risks and comply with relevant regulations and requirements.