Politically Exposed Persons PEPs

The Financial Action Task Force Defines PEP as follows:

  1. current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
  2. a senior official of a major foreign political party
  3. a senior executive of a foreign government owned commercial enterprise, being a corporation, business or other entity formed by or for the benefit of any such individual an immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse’s parents or siblings
  4. any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.

Politically Exposed Persons are individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories.

Some Points:

  1. Such an individual must be tracked by financial institutions as they pose potential reputational risk to regulated entities.
  2. Since September 11, 2001 more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a foundational role.
  3. Recently as per this news the Insurance Regulatory and Development Authority (Irda) has asked insurance companies to be more cautious while concluding contracts with “high risk customers”, particularly the “proposals of Politically Exposed Persons (PEPs)”.
  4. Insurers should devise procedure to ensure that proposals for contracts with high risk customers are concluded after approval of senior management officials.
  5. It is, however, emphasised that proposals of Politically Exposed Persons (PEPs) in particular, require approval of senior management, not below head (underwriting)/chief risk officer level.
  6. In this circular the anti-money laundering (AML) guidelines to be followed by the insurers, Irda stated that while carrying out the know-your-customer (KYC) norms, special care has to be exercised to ensure that the contracts were not anonymous or under fictitious names.
  7. Irda has asked the insurance companies to prohibit directors, officers and employees from disclosing that a suspicious transactions report or related information of policyholder was being reported to the Financial Intelligence Unit – India (FIU-IND).
  8. Irda wants the insurance companies to submit to it, the revised AML policy incorporating the latest stipulations by October 31, 2009.

Source : wikipedia & Business Standard

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