Politically Exposed Person Screening

Politically exposed person screening is the control by which a bank, payment firm or other regulated business finds out whether a customer, a beneficial owner, a director or another connected person is a politically exposed person (PEP), a family member of one or a known close associate. Names and identifying details are compared with PEP databases, usually supplied by specialist data providers, when the relationship starts and at regular intervals afterwards.

Screening is the detection step; the consequences follow from the rules on PEPs. A confirmed match does not mean the customer must be refused. It means the firm must apply enhanced due diligence, which international standards require for every foreign PEP and on a risk basis for others. PEP screening is usually run alongside sanctions screening and checks for adverse media, but it serves a different purpose.

A jeweller selling an expensive necklace might take extra care if the buyer turns out to be a government minister, not because ministers are criminals, but because people in power have more chances to take bribes and hide the proceeds. The jeweller would want to know where the money came from.

PEP screening is how banks find out whether a customer is in that position. A computer compares the customer's name, date of birth and country with lists of people who hold or held important public jobs, plus their relatives and close business partners. If there is a match, a person checks it and, if confirmed, the bank asks more questions and keeps a closer eye on the account.

1. Data collection. The firm gathers the full name, date of birth, nationality and residence of the customer and of beneficial owners and controllers.
2. Matching. Screening software compares the data with PEP lists using fuzzy matching to allow for spelling variations, transliteration and name order.
3. Alert review. Analysts compare each potential match with secondary identifiers, such as date of birth, position and country, to confirm or discount it, and record their reasoning.
4. Escalation. Confirmed PEPs are escalated for enhanced due diligence, including senior management approval and checks on source of wealth and source of funds.
5. Rescreening. The customer base is rescreened as data providers update their lists, so that customers who become PEPs after onboarding are detected, as part of ongoing due diligence.

FATF Recommendation 12 distinguishes foreign PEPs, domestic PEPs and people with prominent functions in international organisations. The European Union treats all PEPs the same way, requires member states to publish lists of the functions that count as prominent public functions, and requires firms to keep treating a person as a PEP for at least 12 months after leaving office, and longer where the risk justifies it. In the United Kingdom, rules changed in January 2024 so that domestic PEPs are, as a starting point, treated as lower risk than foreign PEPs where no other risk factors are present, and the Financial Conduct Authority has guidance on proportionate treatment. In the United States, the rules focus on senior foreign political figures, particularly in private banking accounts for non-US persons.

Commercial PEP databases differ in coverage, including how far down levels of government they go and how they classify relatives and associates. Firms choose which categories and tiers to screen against based on their customer risk rating model and risk appetite. Matching thresholds involve a trade-off: strict settings miss true matches, while loose settings generate large numbers of false positives that analysts must clear. Firms therefore test and tune their systems, document their settings and keep audit trails of each decision, in the same way as for watchlist screening more generally.

PEP screening has been criticised for causing customers to be refused or exited simply because of their job, or that of a relative, even when the risk is low, which regulators have said is not the intention of the rules. Other problems include poor data on beneficial owners, which lets PEPs hide behind companies, inconsistent definitions of close associates, and reliance on outdated lists. Effective screening is one part of anti-corruption controls; it works best combined with good customer information, sensible risk assessment and strong anti-bribery and corruption programmes.