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Assessing Understanding of Politically Exposed Persons (PEP) Risk
In an effort to gauge the understanding of PEP risk within their business, representatives of the Board/Senior Management and the Money Laundering Compliance Officer will assess their knowledge on the topic.
Sector Exposure: A Snapshot
According to data from the Guernsey Financial Services Commission, the banking sector has the largest number of PEPs. This is not surprising given that many bank accounts are opened in conjunction with other business relationships.
| Sector | Percentage |
|---|---|
| Banking | 30% |
| Fiduciary | 26% |
| Insurance | 6% |
| Investment | 27% |
| Non-Core Financial Business | 11% |
While PEP exposure across all sectors is under 6% of total business, the fiduciary sector stands out with a higher percentage of PEP relationships. This is due in part to the fact that legal persons and arrangements can be used to hold illicit enrichment generated from corruption.
Geographical Exposure: A Closer Look
Firms within the Bailiwick are required to report jurisdictional information for PEPs recorded within their business as part of the annual Financial Crime Risk Return. The chart below breaks down foreign PEP exposure between higher risk jurisdictions, equivalent jurisdictions, and the rest of the world:
| Geographic Group | Percentage |
|---|---|
| Lower Risk Jurisdictions | 78% |
| Higher Risk Jurisdictions | 21% |
| Equivalent Jurisdictions | 1% |
| Rest of the World | 0% |
While a significant portion of PEP relationships are from lower risk jurisdictions, almost a quarter have a relevant connection to higher risk jurisdictions known for bribery and corruption.
Type of PEP: A Breakdown
Firms are required to report on the types of PEP relationships they have within their business. The chart below shows the total split in the type of PEP relationships:
| Type of PEP | Percentage |
|---|---|
| Foreign PEPs | 82% |
| Domestic PEPs | 15% |
| International Organisation PEPs | 3% |
Despite the ability to rate international organisations and domestic PEPs as other than high risk, firms are taking a cautious approach, applying a high risk rating and undertaking Enhanced Due Diligence (ECDD) for all three categories.
Declassification of PEP Relationships: A Note
FATF guidance on managing PEP risk allows for a risk-based approach to be taken for individuals who no longer hold a prominent public position. However, any consideration for declassification should not be solely reliant on the length of time a PEP has been out of office but rather consider all relevant risk factors.
By assessing their understanding of these key aspects of PEP risk, representatives of the Board/Senior Management and the Money Laundering Compliance Officer can better ensure that their firm is equipped to manage this critical risk.