How to Successfully Navigate the Complex and Ever-Changing PEPs and Sanctions Landscape

The Russian invasion of Ukraine in February 2022 led to an unprecedented number of new sanctions against individuals, groups, and entities.  But it was not only the scale of the sanctions, issued by multiple regulators, but the speed with which they came into force that created an extremely complex environment for financial institutions (FIs), who have been racing to keep pace ever since.

Similarly, identifying and managing Politically Exposed Persons (PEPs) is increasingly complex due with regulators amplifying the need for vigilance.  Importantly, the FCA is currently undertaking a review to assess how regulated businesses are complying with their legal and regulatory obligations regarding PEPs.

Major national and international events can quickly prompt revisions to PEPs and sanctions lists targeting countries, businesses, groups, and individuals, as well as the level of restrictions imposed on them. In August 2023 the UK government announced a range of new sanctions against Iranian individuals and entities, and following the recent attacks on Israel it’s conceivable that we will see a new raft of sanctions targeting groups such as Hamas and Hizbollah.

How have FI’s responded so far?

It turns out, the response has not been that great actually!  According to new research from SmartSearch only 36% of challenger banks have made changes to compliance procedures to screen for PEPs and sanctions since the start of the conflict in Ukraine. And whilst fairing a little better, 40% incumbent banks still have not taken additional precautions.  

Whilst failure to keep up with PEPs and sanctions changes can lead to inadvertently facilitating money laundering, fraudulent activity, and illegal transactions, it can also run the risk of substantial fines and severe reputational damage.  According to Fenergo, in 2022 alone FIs globally were penalised to the tune of $4.2 billion due to breaches of Anti-Money Laundering (AML) regulations. A 52% increase from 2021 which brings into stark relief the scale of the challenge facing financial institutions right now.

It is crucial for FIs to conduct thorough screening checks and due diligence through the customer lifecycle – from identifying and acquiring new customers, through verification and onboarding, to retaining customers and growing relationships.

But it’s not just the changing PEPs and sanctions lists that are tough to navigate, it is equally difficult to untangle the complex hierarchical structures surrounding them.  Increasingly complex corporate structures and fragmented ownership data obscure a complete view and prevent organisations from effectively assessing risk. Not only does this pose challenges to meeting regulatory requirements, but it also impacts the customer experience.

Time for some good news…

Digital solutions can help simplify the complex PEPs and sanctions landscape and make it easier to navigate.  Here’s how:

• Automated screening - Realtime global coverage to pre-screen for political exposure, sanctions, and adverse media to ensure that your customers are not involved in any illegal or prohibited activities.
• Graph data visualisation – Recognise the connections between directors, shareholders, and group companies up to the Ultimate Beneficial Owner and understand any risks associated with the people you do business with.
• Identify verification – verify identify in real time with automated document verification and facial comparison technology.
• Perpetual KYC- Event-based alert notifications of changes to watchlists, financial and credit information

The even better news…get smarter on PEPs and sanctions

SmartOnboard from FullCircl is the industry’s comprehensive compliance platform, accelerating customer screening while enabling FIs to better manage risk throughout the customer lifecycle.  Features include:

• Customer onboarding checks: Onboard business customers up to 94% faster with automated KYC, AML, and credit checks.  
• Ongoing screening: Screen customers at any time to ensure information reflects current circumstances when reviewing customer products or internal risk appetite.  
• PEPs, sanctions, and adverse media: Get access to PEPs, Sanctions and Adverse Media with categories aligned to the latest FATF recommendations and a 70% reduction in false positives.  
• Ownership and UBOs: Understand company ownership structures and beneficial owners to help improve customer onboarding, reduce risk, and meet regulatory requirements.  
• Credit & Risk: Assess a customer’s creditworthiness and financial health. FullCircl provide credit reports, credit scores, and other critical financial indicators to help you evaluate the customer’s credit worthiness quickly.  
• Monitoring: Event-based alerts notify you of any changes in critical financial information held on the companies in your watchlist.

Book a demo and find out how FullCircl can help you onboard customers faster and manage risks smarter.

Or, why not join FullCircl and our partners at ComplyAdvantage on 2^nd November for our interactive webinar, and get prepared to tackle the PEPs challenge.  Join our expert panel as we discuss:

• Why there isn’t a globally agreed definition for PEPs and the methodologies that can be used to define them.
• How adopting a data-driven approach to deliver a more layered solution for PEP screening empowers risk-based decision-making.
• Best practices to assess PEPs’ family members, known associates, businesses, and their transactional relationships.
• How to investigate relationships and financial interactions to identify broader patterns of sanctions evasion and political corruption.