Politically Exposed Persons: Preventive Measures for the Banking Sector
aware of the issue and are adding identifiers; however, some are limited because of lack of information or they only collect open-source information (for example, from the Internet or in the media). For privacy reasons, they do not draw upon other information that may also be publicly accessible (such as birth registries). Finally, the entire package of services—the database, software, and staff to review the hits—can become quite a costly venture. The conclusion from this review is that these databases provide a very helpful tool for banks. At the same time, the limitations are such that banks should not rely upon them as the only source for determining if a customer is a PEP. They are simply another tool for developing a complete picture of the customer. Other tools and processes will need to be considered, as outlined previously. Some databases and software applications enable users to adjust the settings and parameters of their searches. This function allows a bank to search against a subset of the sources in the database (for example, individuals from one of the noncooperative countries and territories of FATF) rather than the entire database. Although changing the parameters can be helpful in lowering the number of false positives, banks must use caution because calibrating screening rules too narrowly increases the risk that PEPs are not identified. Banks using automated systems for PEP screening should consider whether the screening rules are calibrated appropriately for the nature of the bank’s business, attitude to risk, and customer list. If not, potential matches might not be identified. Regulatory authorities should review the settings of such databases and the specific reliance being placed on database results.
Recommendation: Where applicable, the regulatory authority should include, as part of the onsite inspection, a review of the database used to identify PEPs. The review should include an examination of the commercial database parameters, sample transaction testing, and a review of the bank’s overall database management practices.
Good Practice
Reviewing Database Search Parameters One regulatory authority uses onsite examinations to assess the performance of PEP searches, including a review of the database search parameters, the algorithms being used for routine and ongoing monitoring purposes, and in-house search feeds.
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