Who is the PEP (Politically Exposed Person)?
Politically Exposed Person (PEP) is a common term in the financial industry, and Singapore also takes it seriously. It means that the customer is a holder of a prominent public office or similar functions. It doesn’t matter whether the person is a citizen of Singapore or not.
Examples of PEPs are members of the legislature, senior officials of a political party, senior military officers, a senior judicial officers, or senior civil servants. Senior public servants, government ministers, heads of government, or heads of states are also PEPs. The same case applies to senior executives of corporations owned by the state. A person associated with such people can also be referred to as a Politically Exposed Person (PEP). Therefore, family members of a politician are also PEP.
However, junior and middle-ranked officers are not among the group. So, let’s take a look at this topic in detail.
The importance of KYC Checks for Politically Exposed Person
People in power are often associated with corruption and, consequently, carry a relatively high risk. PEP customers have a high risk, probably more than any other type of client. Once such a person is being investigated for corruption, the bank he associates with will experience lousy publicity. No financial institution wants to experience that lest other customers lose trust in them.
No one wants to entrust their funds to someone involved in corruption. Bad publicity is not the only thing that transpires once such a thing happens. It could also mark the beginning of never-ending legal battles. They take up a lot of time, effort, and money. You don’t want to undergo such a draining experience, so you should be wary of a Politically Exposed Person (PEP).
How do you avoid such a predicament?
Turning away politically exposed persons entirely may not be suitable for the business. That’s probably why the Monetary Authority of Singapore (MAS) has some respective measures. It has given financial institutions the responsibility to apply customer due diligence. Therefore, a business or financial institution can avoid a bad experience with PEPs by taking the Know Your Client (KYC) checks seriously.
There are two types of KYC checks. The first one is basic, and as the name suggests, it is about verifying the identity of new or old investors, shareholders, and clients. On the other hand, there are enhanced KYC checks. It is about gathering as much information as possible about the activities of a particular individual or entity. Then, the organization goes ahead to understand it profoundly and determine the amount of risk. It is crucial for high-risk customers, including the PEPs. Therefore, if a company does the checks diligently, it will mitigate associated risks without locking the PEPs out.
Politically Exposed People are an integral part of the world we live in, no doubt. Equally important, not all of them are corrupt despite being in power. Therefore, it is possible to do business with them without jeopardizing your organization. All you have to do is identify them and then carry out enhanced KYC checks. MAS has put those rules are regulations for a reason, and you can’t afford to ignore them.