Insurance: how to verify politically exposed persons?

PEPs are individuals who hold or have held important political or public positions, and who present an increased risk of money laundering and terrorist financing.

‍International regulations, notably the Financial Action Task Force (FATF) directives and the guidelines issued by the Autorité de contrôle prudentiel et de résolution (ACPR), impose strict obligations on brokers and insurers to monitor PEPs. This includes the implementation of enhanced due diligence processes to identify and monitor PEPs in order to prevent illicit activities in the insurance sector.

In this article, we'll explore in detail what politically exposed persons are, the regulations in place and the innovative methods insurers are using, including emerging technologies, to ensure effective oversight of PEPs. We will also examine the growing role of Insurtech in this strategic area of insurance compliance.

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What is a Politically Exposed Person (PEP)?

PEP definition

Politically exposed persons (PEPs) are individuals who occupy or have occupied important political or public functions at national or international level. This group includes heads of state, ministers, members of parliament and judges, as well as their close associates and family members. PEPs are likely to be exposed to situations of corruption, making them potential targets for illicit activities such as money laundering or the financing of terrorism.

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PEPs categories

The definition of PEPs varies from country to country, but is generally aligned with the recommendations of the Financial Action Task Force (FATF). Due to their access to public resources and political influence, PEPs represent a high risk for financial institutions, including insurers and brokers. International regulations therefore require insurers and brokers to identify and carefully monitor transactions involving PEPs.

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Money laundering and terrorist financing risks associated with PEPs

The monitoring of PEPs is essential to prevent the risks of corruption, fraud and abuse in the insurance industry. Insurers and brokers must implement rigorous enhanced due diligence procedures to ensure that activities relating to PEPs comply with current regulatory and ethical standards.

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PEPs monitoring regulations and obligations

International regulatory framework

In France, as elsewhere in the world, regulations on politically exposed persons (PEPs) are strongly influenced by international standards set by the Financial Action Task Force (FATF) and European Union directives, such as the 5th Anti-Money Laundering Directive (5AMLD) and Solvency II. In France, players follow ACPR directives and AML/CFT legislation, mainly aligned with the European model. Insurers and insurance brokers are therefore subject to strict obligations in terms of combating money laundering and the financing of terrorism.

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Insurers' and brokers' obligations towards PEPs (KYC and AML/CFT)

Against this backdrop, insurers need to implement in-depth KYC (Know Your Customer) measures to identify PEPs among their customers and their beneficial owners. KYC involves collecting and verifying identification documents, as well as assessing the risks associated with each potential customer.

At the same time, insurers must comply with anti-money laundering (AML) and anti-terrorist financing (ATF) requirements. This involves implementing enhanced due diligence procedures for PEPs, including ongoing monitoring of suspicious financial transactions.

Insurance brokers also play a crucial role in implementing these obligations, acting as intermediaries between insurers and customers. They must also ensure that their insurers comply rigorously with KYC and AML/CFT standards, hence the importance of selecting risk carriers who facilitate compliance-related tasks.

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Methods for monitoring PEPs in the insurance industry

Databases

Effective detection of politically exposed persons (PEPs) relies heavily on the use of specialized databases. Insurers and insurance brokers rely on these sources of information to identify individuals with PEP status and assess the associated risks. These databases contain precise information on political leaders, senior civil servants and close associates, facilitating the implementation of rigorous compliance measures.

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Due diligence processes

At the same time, the implementation of enhanced due diligence processes is crucial. Insurers must carry out thorough background checks on the financial activities of customers identified as PEPs. This involves carefully examining sources of income, financial transactions and business relationships for any signs of suspicious behavior or money laundering risks.

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Continuous monitoring

Once a PEP has been identified, ongoing customer monitoring is essential to detect changes in status or activity. Insurers use advanced monitoring tools to closely track customers' financial transactions and behaviors. Any significant change in a PEP's financial profile is reported and analyzed to ensure ongoing compliance with anti-money laundering regulations.

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New technologies and innovation in PEPs monitoring

Insurtech

Insurtech plays a crucial role in the effective monitoring of Politically Exposed Persons (PEPs). By integrating advanced automatic detection technologies into their solutions, Insurtechs enable insurers and brokers to improve the management of risks related to PEPs. These technologies automate data monitoring and analysis processes, facilitating ongoing compliance with anti-money laundering regulations.

As a major player in Insurtech, Seyna has developed innovative new functionalities for monitoring AML/CFT controls. These include advanced tools for detecting and monitoring PEPs. Seyna also offers customized solutions to help insurers effectively manage PEP risks, providing real-time alerts and detailed reports to facilitate decision-making and ensure compliance with regulatory requirements.

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Seyna AML

Seyna AML enables you to check whether your customers and prospects are on the Politically Exposed Persons (PEP) lists.

As part of our PPE checks, Seyna AML relies on services that are distinguished by their exhaustive coverage, bringing together data from over 120 sources worldwide to form a unique dataset.

In addition to the broad coverage offered by our partners, we chose these preferred partners because their data is carefully cleansed, including a step involving human intervention to eliminate duplicate entities across lists, as well as thousands of manually developed data patches that structure identifying information such as dates of birth, countries, addresses and tax identifiers in a consistent manner.

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Conclusion

The monitoring of Politically Exposed Persons (PEPs) represents a major challenge for the insurance industry, due to the growing complexity of regulations and the associated risks. 

Innovation and technology are the first steps towards meeting this challenge, by making life easier for insurers and brokers, especially when it comes to the time-consuming tasks of compliance.

The need to guarantee compliance with AML/CFT standards is therefore a priority for insurers and brokers, who have to cope with increasingly stringent regulatory requirements.