Private banks shun ‘politically exposed persons’

With the escalating political unrest private banks are increasingly shedding relationships with Politically Exposed Persons (PEP), officials in the banking sector said.

Some banks have noticed large withdrawals from PEPs which made them conduct trigger reviews on their accounts. These are basically event-driven reviews that are based on changes in customer profiles warranting a fresh compliance process. Also, the current political crisis reported in the public domain made them re-examine these accounts.

PEPs are described as high-risk customers with more opportunities than ordinary citizens to acquire assets through illegal methods such as taking bribes and money laundering. “Therefore, PEPs must be identified and screened in financial institutions because of their risks. After examining these accounts, we exited (closed) a few of them recently,” a senior banker in a foreign bank told the Business Times on Wednesday.

Industry officials said that during the last four to five years certain banks have been exiting these customers.

Some banks said that their PEPs have been banking with them for a long time. “We have had them from prior to becoming politicians. Our

PEPs are small in number. There is an additional layer of approvals for their banking needs, and it always escalates to the director board level,” a banker in a local private bank told the Business Times. He also pointed out that categorising PEPs is also exhaustive as government officials, political party officials, senior public executives' relatives, and all their close associates come under this section.

Anti-money laundering (AML) experts in the banking sector pointed out that identifying PEPs and determining their risks is generally referred to as PEP List Screening. “It is an essential screening for the best implementation of AML compliance programmes, especially in financial institutions,” an AML expert said. He added that banks are governed by complex compliance rituals. If they foresee any risk of money laundering by PEPs, they can decline to open accounts for them or discontinue the existing accounts because the banks are exposing themselves to money laundering, he added. He also said that foreign banks have an additional set of AML regulations which they need to comply with and that these institutions are more stringent with PEPs than their local counterparts.

As a result, they evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as PEPs more than local banks.

However, bankers say that the sticky part of letting PEPs go happens when they prolong settling credit cards. They don't take lightly the fact that the relationships with the financial institutions have ceased and drag settling their credit cards, they added.

If the private banks are reluctant to open accounts for PEPs, with whom do they bank?

It is not even a guess - state banks! These institutions have to do it for multiple reasons out of which fear ranks at the top.

As a result, they evaluate the bank's policies, procedures, and processes to assess, manage, and mitigate potential risks associated with foreign individual customers who the bank has designated as PEPs more than local banks.