PEP stands for a politically exposed person and is a term that is really important in the event that you are labeled as one. Your financial transactions end up being closely monitored by a mutual fund company’s anti-money laundering committee.
When you invest in mutual funds, the first step is going through a KYC process. This is where you have to declare if you are a PEP or not. 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, governors of state, military officers and others. It is also possible to end up qualifying as 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 in order to prevent money laundering. It is even necessary because of combating financing of terrorism (commonly referred to as CFT). PEPs need to be approved by a financial institution’s senior management before doing business.
When you subsequently qualify as a PEP or are one, transactions are going to be closely monitored. The anti-money laundering committee needs to do this in order 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. With complex and large transactions happening between customers and known relatives that do not have an economic rationale, tracking is even more strict.
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, together with many other financial institutions, being a PEP automatically means more data is needed as accounts are open. This automatically means 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 the affiliation they have with others that are. When there is a family member that 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 are going to be enhanced. This basically means it will take longer to be accepted since extra documents will be required.
In the event that you are PEP and transactions are 100% legitimate, no problems appear. The same goes for when no suspicious transactions are detected.
When you are PEP, you do not have to worry. The only thing that is different is the time needed to process initial transactions. Then, everything happens just as with other customers. KYC is more complex and security checks are enhanced but this should never worry honest investors.