Politically Exposed Persons and regulations in India

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Politically Exposed Persons is a very key concept in tackling the Money Laundering. Politicians are becoming smarter and are creating the fence of their trusted associates in the business. It is not easy task to understand the political involvement in the Businesses. Many regulators in India have started coming with  the circulars which explain what action a regulated entity should take when they figure out that they have to deal with the Politically Exposed Persons.

Insurance Regulatory Development Authority

In 2015, the Insurance Regulatory and Development Authority of India (Irdai) also directed all insurers to ensure appropriate risk management procedures for identifying and applying advanced due diligence measures to PEPs. It is emphasized that proposals of (PEPs) in particular requires approval of senior management, not below the level of Head (underwriting) or chief risk officer.

Reserve Bank of India

RBI Defines the Politically Exposed Persons (PEPs) as the individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States / Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc.

Now here is the catch. These definitions are not specific. In India, the politicians take the shape of MPs, MLAs, Ministers and Corporators. Now there is a room for interpretation. Every Banker can interpret the definition differently. 

This was the primary reason why we conceptualized the centralised database of the Politically Exposed Persons along with the unique identifiers of these politicians. The same may be used by various application developers for banking sectors to embed the data into their product offering. 

Bankers have the option of establishing a relationship with PEPs provided
that:

  1. Sufficient information including information about the sources of funds accounts of family members and close relatives is gathered on the PEP;
  2. The identity of the person shall have been verified before accepting the PEP as a customer;
  3.  The decision to open an account for a PEP is taken at a senior level in
    accordance with the Customer Acceptance Policy of the Bank;
  4. All such accounts are subjected to enhanced monitoring on an on-going basis;
  5. In the event of an existing customer or the beneficial owner of an existing account subsequently becoming a PEP, senior management’s approval is obtained to continue the business relationship;
  6. The CDD measures as applicable to PEPs including enhanced monitoring on an on-going basis are applicable.