By Rory Doyle, Head of Financial Crime Policy at Fenergo.
Just when you thought the drama was over after the Nigel Farage-Coutts saga, along comes another high-profile figure to re-shine a spotlight on a problem that refuses to disappear.
Andy Haldane, a former bigwig at the Bank of England, is the latest to be denied a bank account due to his perceived political affiliations, despite no longer being employed by the Bank. It’s like déjà vu, but instead of a Brexiteer, it’s an ex-central banker taking centre stage.
Haldane, who would have spent more time crunching numbers than shaking hands with politicians, appears to have found himself in hot water simply for his past Threadneedle Street gig. But the Bank of England isn’t exactly known for its political shindigs – so why the snub? Turns out, it was a simple case of mistaken identity, courtesy of a computer glitch. Sound familiar?
The incident underscores the complexities inherent in politically exposed persons (PEPs) identification and the potential consequences of misclassification. PEPs aren’t just your run-of-the-mill VIPs; we’re talking presidents, prime ministers – those who really call the shots. But it doesn’t stop there. Royal families, leaders at state-owned companies, and even the top dogs at international organisations like the UN are fair game. The idea is simple: where there’s power, there’s potential for corruption.
The issue is there is no one-size-fits-all description of a PEP, with every jurisdiction playing by its own rules. The US has one definition, the EU another, and let’s not get started on the rest of the world. So, what’s a bank to do?
Well, for starters, they need to up their game when it comes to due diligence. We’re talking Sherlock Holmes levels of sleuthing here. Banks must dig deep, not just into the pockets of PEPs, but into their entire financial history. Who’s giving them money? Where’s it coming from? And most importantly, is it clean?
But there’s a deeper issue at the heart of this longstanding predicament: many banks still rely on antiquated systems and processes when it comes to onboarding and managing clients who are categorised as PEPs, leaving them drowning in a sea of paperwork and red tape. Or as in the case of Haldane, fall foul of human error.
Thankfully, though, a life raft may be within reaching distance.
Advancements in client lifecycle management (CLM) software can enable banks to finally untangle the mess of corporate hierarchies and more accurately understand who’s really pulling the strings – or perhaps more fittingly, the purse strings. It can help banks deal with the complexities of identifying and understanding the potential risk of PEPs by enabling them to sift through complicated company setups more easily – meaning they can pinpoint the real decision-makers much faster. Tech solutions can also make it easier to gather all the extra info needed to meet the regulatory rules, in theory making PEP onboarding and management smoother than ever.
Considering the Haldane case, it’s evident the challenges surrounding PEP identification and management persist, with real-world implications for individuals and institutions alike. As financial institutions navigate this problematic issue, a proactive approach, bolstered by technological innovation and regulatory collaboration, seems essential.
By learning from incidents like Haldane’s, financial institutions can enhance their ability to effectively onboard and manage PEPs, thereby mitigating risks and safeguarding the integrity of the financial system. As we move forward, let’s heed the lessons of the past and work together to ensure PEP management remains a top priority for the industry.
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