PEP is a politically exposed person and is a really important term if you are labeled as one. A mutual fund company’s anti-money laundering committee closely monitors your financial transactions.
When you invest in mutual funds, the first step is going through a KYC process. This is where you have to declare whether you are a PEP. Do you know if you are one, and does this matter?
The PEP is an authorized person that can perform public functions. This includes Parliament members, senior government executives, judicial executives, state governors, military officers, etc. It is also possible to qualify as a PEP when you are a close relative or a family member of a PEP.
Why Does It Matter?
After being declared as PEP, financial institutions like mutual funds and banks perform extra due diligence tasks as applications are processed. This is practically a preventive measure so that possible fraud can be avoided in the future.
It is now mandatory for people to declare PEP when it applies to prevent money laundering. It is even necessary because of combating the financing of terrorism (commonly referred to as CFT). A financial institution’s senior management must approve PEPs before doing business.
When you subsequently qualify as a PEP or are one, transactions will be closely monitored. The anti-money laundering committee needs to do this to track money outflow and inflow. When patterns change, or transaction amounts change, the committee can see this as “suspicious transactions). Further investigation needs to be done. Tracking is even more strict with complex and large transactions between customers and known relatives that do not have an economic rationale.
Does PEP Status Influence, The Individual?
Laws are complex, and it is important to know them before doing business. When referring to mutual funds and banks, and many other financial institutions, being a PEP automatically means more data is needed as accounts are open. This automatically implies that PEP will influence you as you want to make investments.
It has to be added that many do not know they are PEP because of their affiliation with others. When a family member is a politically exposed person, you have to be aware of the possibility that you might also be a politically exposed person.
Whenever falling under the inclusive PEP category, the financial institution’s due diligence and KYC processes will be enhanced. This means it will take longer to accept since additional documents will be required.
No problems appear if you are PEP and transactions are 100% legitimate. The same goes for when no suspicious transactions are detected.
When you are PEP, you do not have to worry. The only different thing is the time needed to process initial transactions. Then, everything happens just as with other customers. KYC is more complex and enhanced security checks, but this should never worry honest investors.