What is PEP Screening?
PEP screening is the process of checking whether a customer, beneficial owner, or counterparty is a politically exposed person (PEP) or a family member or close associate of one.
PEP screening identifies customers who need enhanced due diligence. PEPs face greater exposure to bribery and corruption because of their public roles, so regulators expect firms to know when they are dealing with one and to apply closer scrutiny to the relationship.
PEP screening runs alongside sanctions screening in customer due diligence. Firms screen names against PEP databases before activating an account, and a match triggers further review before the relationship goes ahead.
How does PEP screening work?
PEP screening compares customer names against databases of PEPs and their relatives and close associates. Firms typically screen the following people.
- Individual customers at onboarding
- Beneficial owners and controllers of business customers
- Existing customers whenever PEP data updates
- Customers at periodic reviews and trigger events, such as a change in role
PEP screening uses the same name matching techniques as sanctions screening, including fuzzy matching and checks against date of birth, nationality, and other identifiers. Analysts review each potential match to confirm whether it refers to the same person. Many firms also collect a PEP declaration from customers at onboarding.
What happens when PEP screening finds a match?
A confirmed PEP match leads to enhanced due diligence. The firm verifies the customer's source of wealth and source of funds with reliable evidence, such as salary records, audited financial statements, or tax returns. Senior management usually approves the relationship before it goes ahead.
PEP relationships then receive closer ongoing monitoring. High-risk customers, including PEPs, typically face at least annual reviews, stricter transaction monitoring thresholds, and more frequent adverse media checks. A PEP match also feeds into the customer's overall risk score.
How do firms apply PEP screening on a risk-based approach?
Firms apply PEP screening on a risk-based approach by treating PEPs according to their actual risk level. PEP definitions and risk levels vary by country, and the seniority of a role matters, so a junior local official may need lighter checks than a senior minister in a high-risk jurisdiction. Firms document how they classify PEPs and update those classifications as roles and regulations change.
