Business Trends

The Power of RCAs in PEP screening and monitoring in Mitigating Financial Crime Risk

There are many risks that financial institutions must manage, from money laundering to terrorism financing. This puts politically exposed persons or PEPs at a significantly higher risk. High government positions are politically appointed PEPs. They use PEP names to hide their evil deeds and maintain anonymity. This is why banks need to follow up on PEPs carefully.

The banks are screening PEPs. Detection uncovers red flags in customer accounts. It also helps to track accounts over time. Banking institutions need to understand why suspicious activity continues with all manner of accounts so as to mitigate these risks in the future. We need Root Cause Analysis or RCAs to zoom in on this. Rogue RCAs dig deep to the heart of the issue. RCAs are invaluable when employed alongside PEP screening. With these tools, banks can improve their defenses against financial crimes and comply with regulations at the same time.

PEP Screening and Its Impact on Financial Crime Risks

Challenges from money laundering and terrorism financing expose banks to the potential adverse impact on their business. This is the reason why, by law, banks are required to push back against their customers. Screening is the process of examining PEPs to identify elements of corruption or other criminal activity. RCA in PEP screening studies why red flags happened to improve the way banks monitor PEPs in the long run.

What are RCAs, and How Can They Support PEP Monitoring?

RCA stands for Root Cause Analysis. It is a method to find the most profound reasons for problems. Banks use RCA screening along with regular PEP screening. RCA screening looks deeper than red flags to understand why exactly they came up. For example, it may find a PEP has suspicious contacts through work. Knowing this helps banks focus their ongoing RCAs and PEPs screening to watch such risks closely in the future and follow laws.

Apply RCA Methodologies to Your PEP Screening Processes

Banks apply the RCA method by studying PEP screening closely. They analyze how and why specific details in PEP accounts once seemed normal but with RCAs flagged as suspicious over time. In this way, RCAs connected to PEP screening give insights to strengthen checking systems. Banks can then update their RCAs and PEPs screening processes to close gaps and better monitor PEPs to reduce risks for their business and obey rules.

Detecting Red Flags and Uncovering Root Causes Through RCA Screening

Financial institutions conduct RCA screening on 30-40% of high-risk PEP accounts each year to find red flags like unusual transactions. This helps detect over $5 billion in suspicious flows. Red flags need to show why issues happen. Deeper RCAs and PEPs screening finds that for one politician, a red flag like frequent $50,000 transfers was due to accepting bribes from 10 companies. This reveals the actual corruption risk and strengthens monitoring.

Improving Customer Due Diligence with Data from RCA Findings

Banks leverage what they learn from 2,500 PEP accounts in an RCA to improve the quality of their due diligence. For instance, thorough RCAs and PEPs screening with a customer turned up the source of numerous million-dollar donations that were otherwise not on the books. From this, banks revamped their due diligence templates requesting proof of donation. 

RCA-Informed Workflows To Enhance Continuous Customer Surveillance

Ongoing RCA screening and monitoring, as well as fast feedback on PEP portfolio risk ratings, have led to refinements. A large bank designed a new process based on its time-consuming and costly internal process for checking international travel. It found 25 PEPs whose regular personal weekend vacations billed in excess of $100,000 apiece had uncommon capital flows. Reviewing these high-risk activities in the dataset allowed the bank to specifically target them, resulting in 15 account closures, which, in turn, cut the bank’s misconduct fines.

Continuous Compliance Controls in Practice: Putting Lessons Learned to Work

Every RCA screening and, PEP and RCA monitoring cycle is teaching banks a lot about their clients. A key finding that emerged was that transaction monitoring of PEPs in shipping had detected anomalies in the pattern of PEP transactions, revealing that large, expensive vessels were being bought and then sold every six months. Law enforcement later used those exact lessons to help uncover a global system through improved compliance controls because of the facilities that were enabled to avoid this detection. Banks now incorporate the common reviews to iterate over how RCA screening and monitoring results can inform better policies to enhance financial crime prevention.

Evidencing Regulatory Compliance via Strong RCA Practices

Regulatory scrutiny of Bank use of RCA screening and monitoring for AML programs Overall, those with robust RCA processes with evidence-based control development will be deemed more thoroughly compliant. With RCA enabled in one bank, a new review adjusted PEP oversight and scrutiny every time monitoring identified 20 or more linked suspicious trading networks. 

Find out how you can comply with the regulations and bolster your financial crime prevention by reading here about the benefits of implementing a comprehensive RCA process. Head to our website to read about how to implement RCA methodologies into your PEP screening and ongoing monitoring processes now.

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