Politically Exposed Person (PEP)
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A politically exposed person (PEP) is a term used in the financial world to describe customers who are either directly involved in politics or linked to people directly involved in politics.
The main reason for categorizing people into such segments is that those in power in whichever nation can be susceptible to corruption and therefore carry a higher risk.
There are no global standard to what constitutes a PEP. But financial institutions have a particular interest as people who are being investigated for corruption can bring bad publicity for the bank involved. It can also mean a long legal involvement of such cases.
Political risks is all the more important for new customers. Which is why these checks are typical in KYC.
Sometimes all it takes is to have a photo taken with a politician for a lender to determine a person as a PEP. Family members of politicians are also PEP.
PEP risks are not limited to the country that a bank operates in. But can also apply to people from other countries as well.
Such checks are usually conducted by running the names of the people in question through a database search. And if a match is found, further investigation would be done to determine the risk level, and approvals being done manually.
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