PEP Risk Management

Questions and Answers

What is a key aspect of a firm's risk-based approach to dealing with Politically Exposed Persons (PEPs)?

Automatically closing accounts with PEPs

Applying the same level of due diligence to all customers

Obtaining approval from the financial regulator

Obtaining senior management approval for establishing a business relationship (correct)

What is a key risk posed by a firm's clients?

Credit risk

Market risk

Liquidity risk

The risk of being deceived for criminal outcomes (correct)

What is a key consideration for a firm when choosing delivery systems for its services?

Cost

Ensuring instructions are from the actual customer (correct)

Speed

Convenience

What is a key aspect of Know Your Customer (KYC) procedures?

Establishing the source of wealth and funds Signup and view all the answers

Why is it important for a firm to validate a person's identity?

To prevent impersonation Signup and view all the answers

What is a key risk associated with certain financial products?

Tax evasion Signup and view all the answers

What is a key aspect of enhanced ongoing monitoring of a business relationship?

Regularly reviewing customer information Signup and view all the answers

Why is it important for a firm to have robust systems for validating a person's identity?

To prevent fraud and financial crime Signup and view all the answers

What is a key consideration for firms when screening customers after a business relationship has been established?

The risk of breaching sanctions prohibitions due to delayed screening. Signup and view all the answers

What should firms do when the standard evidence of identity is insufficient in relation to the money laundering or terrorist financing risk?

Obtain additional information about the particular customer. Signup and view all the answers

What is the purpose of having a variety of settings for fuzziness in the matching process?

To enable greater or less fuzziness in the matching process, as appropriate to the risk profile of the business. Signup and view all the answers

What is a consequence of generating and resolving an undue number of false positives?

Negative impact on the efficacy of the resolution process. Signup and view all the answers

When should firms screen customers?

During the establishment of a business relationship or as soon as possible after the business relationship has commenced. Signup and view all the answers

What is a key aspect of a firm's risk-based approach?

Applying enhanced due diligence measures on a risk-sensitive basis. Signup and view all the answers

What is the purpose of enhanced due diligence measures?

To reduce the risk of money laundering or terrorist financing. Signup and view all the answers

Why must firms be aware of the absolute restrictions embedded in the financial sanctions regime?

To avoid breaching sanctions prohibitions. Signup and view all the answers

What is the primary goal of implementing a risk-based approach to money laundering and terrorist financing?

To identify and assess the likelihood and impact of money laundering and terrorist financing risks Signup and view all the answers

What is a key component of Know Your Customer (KYC) procedures in preventing money laundering and terrorist financing?

Verifying customer identities and collecting additional information as necessary Signup and view all the answers

State two of the objectives of regulation.

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Study Notes

Firms and PEPs

Firms must take a risk-based approach to dealing with Politically Exposed Persons (PEPs)
This approach involves:
- Having procedures to determine if a customer is a PEP
- Obtaining senior management approval for establishing a business relationship with a PEP
- Establishing the source of wealth and funds involved in the business relationship
- Conducting enhanced ongoing monitoring of the business relationship

Risks to a Firm

Firms are exposed to financial crime risks due to their clients, products, and delivery systems
Risks arise from:
- Dishonest clients seeking to deceive the firm
- Products that offer tax benefits (e.g., ISAs, pensions) and the risk of tax evasion
- Delivery systems that can be vulnerable to impersonation or other criminal activity

Managing and Mitigating Risks

Firms must implement measures to:
- Verify customer identity
- Collect additional customer information
- Monitor transactions and activity to detect potential money laundering or terrorist financing
Firms must determine the extent of their Customer Due Diligence (CDD) measures based on the type of customer, business relationship, product, or transaction
Examples of control procedures include:
- Customer identification programs tailored to the customer's risk level
- Requiring high-quality evidence (documentary, electronic, or third-party assurance)
- Obtaining additional customer information based on their risk level
- Monitoring customer transactions and activities

Risk Management

Risk management is a continuous process that must be regularly reviewed and updated
Firms must keep their risk assessments up to date to ensure effective risk management
Software solutions can help identify potential matches and reduce false positives
Firms should consider the level of human intervention needed to assess false positives

Customer Screening

All customers should be screened during the establishment of a business relationship or as soon as possible after
Firms must be aware of the risks associated with screening customers after a business relationship has been established
Firms must be aware of the absolute restrictions embedded in the financial sanctions regime
Delays in screening can result in breaching the legislation

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Description

This quiz assesses knowledge of firms' requirements for managing risks associated with Politically Exposed Persons (PEPs). It covers procedures for determining PEP status, senior management approval, and ongoing monitoring.