What is the difference between watch-list filtering and transaction monitoring?
Watch list filtering involves screening names and addresses against sanctions lists such as OFAC, BOE etc. for the purpose of identifying embargoed and prohibited individuals and entities.
Transaction monitoring involves the scanning and analysis of SWIFT, payment and other financial transactions to identify unusual or suspicious activity for reporting, as required by applicable AML law. Transaction monitoring differs from watch list filtering in that it requires interpretation and judgement to determine and identify unusual activity and unusual patterns of activity or transactions.
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The term "politically exposed persons" ("PEP") applies to persons who perform important public functions for a particular jurisdiction. The definition used by regulators is usually very general and leaves room for interpretation. For example the Swiss Federal Banking Commission in its guidelines on money laundering uses the term "person occupying an important public function", the US interagency guidance uses "senior foreign political figure" and the BIS paper Customer Due Diligence for Banks says "potentates".
The term should be understood to include persons whose current or former (Rule of thumb is one year after giving up any political function) position can attract publicity beyond the borders of the country concerned and whose financial circumstances may be the subject of additional public interest. In specific cases, local factors in the country concerned, such as the political and social environment, should be considered when deciding whether a person falls within the definition.
The following examples are intended to serve as aids to interpretation:
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Heads of state, government and cabinet ministers;
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Influential functionaries in nationalized industries and government administration;
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Diplomats and ambassadors
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Senior judges;
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Senior party functionaries;
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Senior and/or influential officials, functionaries and military leaders and people with similar functions in international or supranational organizations;
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Members of ruling royal families;
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Senior and/or influential representatives of religious organizations (if these functions are connected with political, judicial, military or administrative responsibilities)
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Where can I find an “official” PEP list?
You can’t. No government or international agency provides one. Governments list their own high ranking PEP entities. There is no “official” list, however, private companies do provide this database. SBS will create a PEP subset customized to an institution’s risk threshold and based on SBS’ proven methodology for the SAFE Exposure Index® (SAFE EI).
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Why is PEP filtering such a challenge?
PEPs are common names with no consistent definition. Identifying Politically Exposed Persons can be a difficult undertaking, particularly, if the customer fails to provide important information or even gives false information. Despite all the banks' efforts at recognizing Politically Exposed Persons, it is a fact that they do not have the necessary powers, means nor information at their disposal to detect such persons. Banks are restricted in what information they can obtain. They must rely on the information they are given by clients and that can be gleaned from business documents or from the media. In particular, when close associates or families of a Politically Exposed Person open a business relationship with a bank it is often impossible to establish that relationship a "PEP relationship" on the basis of the limited information available to the banks.
The following prompts might - in addition to the standardized KYC procedures - be appropriate to recognize a Politically Exposed Person:
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The question of whether clients or other persons involved in the business relationship (see below) perform a political function should form part of the standardized account opening process, especially in cases of clients from corruption-prone countries.
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To let client advisor deal exclusively with clients from a specific country/region might improve their knowledge and understanding of the political situation in that country/region.
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The issue of Politically Exposed Persons should form part of the regular KYC training programs
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Banks may use databases listing names of Politically Exposed Persons (and their entourage). In this regard it would be helpful if authorities issuing directives on how to deal with Politically Exposed Person would support the banks.
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Why is exposure ranking so important in watch list filtering?
Exposure ranking is an objective method for calculating PEP prominence and notoriety in order to minimize a financial institution’s vulnerability to financial and reputational risk. SBS’ SAFE Exposure Index® (SAFE EI) measures the relationship between PEPs and their underlying attributes, information sources and related entities.
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What is the SAFE Exposure Index® (EI) from SBS all about?
The SAFE Exposure Index® (EI) from SBS, is a method for objectively ranking the relative “political exposure” of the politically exposed in a PEP database. By selecting a subset by EI rank (i.e. the top x% of PEPs by EI rank), financial institutions maximize their PEP coverage and alert relevance for any given level of filtering capacity.
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Can SBS assist our institution in defining a watch list filter program?
Yes, in addition to providing the technology to support comprehensive compliance and risk management programs, SBS offers professional services, including consulting, to help you design a cost effective watch list filtering program that meets all regulatory requirements. An important component of any watch list filtering program is the management of the various lists which are updated by government agencies. SBS offers options for a list management service or utilities for managing these lists in-house and will help you determine the best option for your program.
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SBS provides a Total Solution – what does my institution need to provide?
SBS will partner with you early in the project lifecycle to ensure well coordinated planning and effective communication with your business and technical resources. Since infrastructure issues and hardware prerequisites are the sole responsibility of our clients, we will offer recommendations to help you optimize performance and maximize your investment.
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Does SBS provide an ASP model for PEP filtering?
SBS has recently initiated research and development of managed hosting and plans to launch an ASP offering in 2007. Check our web site for updates.
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What does SBS provide to smaller institutions for transaction monitoring?
SBS World-Check Total Solution is available in a Desktop Edition providing scalability for smaller institutions with low volume. SAFE Reports to monitor and investigate financial transactions is a single or multi-site solution and may be applied to both archived and current SWIFT traffic.
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How can I be sure that SBS can help my institution?
Just take a look at our partial client list to see how we’ve helped other institutions meet their compliance needs.
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