What should a financial compliance system monitor for? Every good financial institution knows its customers well. This includes monitoring all transactions closely and keeping a current list of PEPs that are politically exposed persons.
Examples may include government officials, politicians, or other persons holding topmost public positions. In dealing with PEPs, there is additional risk; hence, specific alert types related to these should be watched for in financial monitoring systems.
An effective financial compliance system shall be implemented to keep up with the 7 core types of PEP alerts. It safeguards the institution from reputational risk that might come from inappropriate associations.
The article details the 7 kinds of PEP alerts that all financial monitoring software must be screened for.
- Political alerts
Political alerts are necessary for PEP screening. These are individuals holding any prominent position in public office. They can be elected officials, senior government employees, or political party leaders.
Since PEPs have more leverage and financial wherewithal, financial institutions must track transactions involving these people with added care. The PEP alerts make compliance systems enable customers who are PEPs, either in current or former political roles, to pass through proper screening for extra risk factors in such profiles.
- Watchlist alerts
The watch list alerts from the compliance system are very vital in the monitoring of known persons who pose a high risk. These PEP lists, along with other individuals identified as a reputational or legal risk, are listed on international lists, including the OFAC sanctions list.
If, during PEP screening, the customer’s name pops up as a possible match to one of these blacklist watchlists, your system raises a watchlist alert immediately.
Watchlist alerts are warnings to refrain from transacting business with the flagged party until their identity can be verified by matching information to the watchlist. This ensures proper PEP checks and compliance with financial regulations.
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- Geographic Alerts
Geographic alerts include the location of transactions and customer origin. The transaction location and parties’ place of residence might indicate a higher risk and call for increased scrutiny of the PEP. An alert is helpful in case a country of origin or destination of a transaction is known to pose higher financial crime risks.
This puts on alert customer profiles associated with these geographies, calling for deeper scrutiny in the course of the PEP checklist to eliminate any suspicion. Geographic alerts support compliance by providing a contextual assessment of risk about people and places.
- Transaction Alerts
Through PEP screening, transaction alerts are very vital to highlight any abnormal patterns of payments for high-value clients. A financial institution is responsible for monitoring the amount, frequency, country, and counterparties of the transaction.
One study in a financial network showed that nearly 10% of SARs contained transactions exceeding $50,000 that involved an identified PEP.
- Name match alerts
Other practical compliance tools include name match alerts, which signal the presence of clients whose identification information is similar to that appearing on lists of PEPs. Even minor similarities between the name, date of birth, or any other identifiable information need to be double-checked in the course of a PEP screening.
A name match alert acts as a reminder to more closely examine a new or existing customer’s identity against influential persons of interest. This helps reduce the risks from persons seeking to avoid scrutiny of their activities and transactions by using a known PEP name.
- Industry Alerts
Since some industries are more straightforward targets of financial crimes, such as money laundering, the alerts on a client’s line of work become very important to catch within PEP screening systems.
Specific industries listed on watchlists pose additional risks for your financial institution. Hence, filtering clients in high-risk sectors like arms, natural resources, or gaming through customized compliance checks and scrutiny helps provide that extra layer of protection.
This is achieved through industry alerts, which flag profiles connected to business domains, and a recent study found nearly 25% of PEPs globally.
- Sanctions Alerts
Sanctions alerts notify you in cases where a customer or any transaction may be in potential breach of international embargoes and trading restrictions. With the updating of lists of sanctioned territories, entities, and persons by regulators, financial institutions are reliant on automated screening.
Any sanctions match highlighted from the PEP checks against the updated lists should trigger an investigative process to make sure that no unlawful involvement is involved. Early warnings on sanctions matches protect not only legal compliance within the financial world but also the organization’s reputation.
For any financial institution to remain compliant with all applicable regulations on PEP screening, a monitoring system that screens against all key alert types in real time needs to be in place.
SAM