PEP screening and sanctions screening form a critical part of the Know Your Client (KYC) process. They identify customers who present elevated ML/TF risk or who cannot be onboarded at all due to legal restrictions. A practical approach focuses on understanding when screening must occur, how results influence customer risk profiles, and what controls support ongoing monitoring.
PEP Screening and the KYC Process
PEP screening is conducted during the initial KYC Process alongside identity verification, address verification, and other standard due diligence steps. A Politically Exposed Person (PEP) is not automatically a criminal, but their position and access to public funds create a higher exposure to bribery, corruption, and misuse of influence. If a customer or beneficial owner is a PEP, the reporting entity must recognise the elevated ML/TF risk and consider whether enhanced due diligence (EDD) is required.
Definitions of PEPs vary across jurisdictions, so screening solutions must capture global PEP classifications and support reliable identification.
Ongoing PEP Screening
PEP status is not static. Customers may become PEPs after onboarding, which means PEP screening must be part of the ongoing monitoring framework. Automated tools reduce the operational load by detecting changes in PEP status and generating alerts that trigger review or EDD. This supports an accurate, up-to-date customer risk profile throughout the relationship.
Sanctions Screening and KYC
Sanctions screening is mandatory in most AML/CFT regimes and must be integrated into both onboarding and ongoing monitoring. Unlike PEPs, sanctions hits are not subject to EDD - entities must not establish or continue business relationships with individuals or organisations subject to sanctions. Screening checks the customer’s name, beneficial owners, and related entities against global sanctions lists and identifies potential matches that require immediate escalation.
Because sanctions list change frequently, automated screening tools are essential to maintain accuracy.
Managing Screening Challenges
Sanctions screening and PEP screening often produce false positives due to name similarities, transliteration issues, aliases, and inconsistent data across international lists. Effective screening tools use additional identifiers such as date of birth, registered address, nationality, or corporate registration details to reduce unnecessary alerts. A risk-based workflow ensures genuine matches receive timely escalation while operational resources are not wasted on avoidable noise.
Ongoing KYC Requirements
KYC obligations do not end at onboarding, and the same applies to screening obligations. Reporting entities must continuously screen customers against updated sanctions lists, PEP classifications, and relevant adverse media sources. Automated onboarding and monitoring solutions streamline this process and reduce manual processing, particularly for businesses onboarding high volumes of clients.
Impact of Inadequate Screening
Failure to conduct effective sanctions screening or PEP screening exposes businesses to legal penalties, regulatory action, and reputational damage. For regulated entities — including financial institutions, virtual asset service providers, and other AML/CFT-reporting businesses - inadequate Know Your Client practices can result in onboarding customers involved in illegal activity or breaching sanctions prohibitions. A reliable KYC solution with strong PEP and sanctions capability is essential for operational integrity and compliance.
