The 2024 elections in several countries, including major economies, will not only transform the political landscape, but will also have a substantial impact on how financial institutions manage their obligations under Anti-Money Laundering (AML) legislation, particularly regarding Politically Exposed Persons (PEPs).
Key Insights and Expected Changes
Increase in New PEPs
The elections will result in a significant increase of new PEPs at all levels: national, state, and municipal. These freshly elected officials, their close family members and associates, will be designated as PEPs, requiring financial institutions to exercise tougher due diligence to limit risks.
Evaluation of Political Campaigns
Financial institutions must focus on political campaigns, with Enhanced Due Diligence (EDD) becoming increasingly important to ensure that campaign funds are not exploited. This entails a detailed investigation of the monies’ sources and destinations to prevent money laundering and fraud.
Status of Former PEPs
Following elections, certain people will no longer have political roles. In some jurisdictions, AML regulations allow regulated firms to withdraw PEP status from clients after a set length of time, if there is evidence that the individual no longer has substantial influence. Institutions must treat former PEPs in accordance with national law.
The Need for Continuous Risk Assessment
The changing political context needs frequent appraisal of the risk profiles of both existing and future PEPs. As their political power and duties evolve, the level of due diligence should be changed in accordance with national law, guaranteeing a proactive approach to limiting any PEP risks.
To properly manage PEP-related risks, regulated entities should re-screen clients after elections to detect new PEPs or those who have lost their political importance. They should implement EDD methods for all new and former PEPs in accordance with national law, such as ongoing monitoring and regular risk assessments. Ensuring that the screening tools are up to date with the latest PEP information will be helpful as well.
Possible Geopolitical Effects of 2024 Elections
Elections can cause far-reaching consequences beyond immediate political movements. New governments may change AML legislation or enforcement priorities, forcing financial firms to remain aware and compliant. Furthermore, political instability or conflict caused by elections might increase financial crime risks.
Addressing the problems posed by the 2024 elections in a proactive manner will assist financial institutions boost their AML compliance programmes. Effective PEP risk management not only assures regulatory compliance, but it also promotes a culture of alertness against potential financial crimes.
Summary
The 2024 elections in key economies will have a huge impact on how financial institutions comply with AML requirements, particularly PEPs. A spike in new PEPs will necessitate stricter due diligence procedures, including more inspection of political campaign expenditures. Changes in PEP status following the election will demand adjustments to risk assessments. Ongoing risk assessment and re-screening of customers are critical. It is critical to stay current on changes in Anti-Money Laundering rules and geopolitical trends. Proactively addressing these issues will improve AML compliance programmes and increase financial crime prevention.
FAQs
What is a Politically Exposed Person (PEP)?
A PEP is a person who currently or previously held a significant public position, such as a head of state, senior government official, judicial or military officer, senior executive of state-owned corporations, or an important political party official.
What responsibilities do financial institutions have regarding PEPs?
Financial institutions must conduct enhanced due diligence (EDD) measures for PEPs, such as ongoing monitoring, extensive analysis of their financial transactions, and regular risk profile updates.
Are family members of PEPs considered PEPs?
Yes, close family members and associates of PEPs are considered PEPs because they may benefit from or participate in the PEP’s influence or corruption operations.
What happens if a PEP leaves their political position?
When a PEP leaves their political position, they may still be regarded as a PEP for a limited time, as stipulated by national laws. Financial institutions may remove PEP designation after this time, if there is proof that the individual no longer wields considerable power.
What steps might financial institutions take to mitigate PEP-related risks?
Financial institutions can re-screen their clients, execute increased due diligence, conduct regular risk assessments, and keep their IT screening technologies up to speed with the most recent PEP information.
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