If you’re a fintech operating in South Africa, your business relationships with a Politically Exposed Person (PEP) could lead to a very serious misstep within your business without the proper due diligence. That’s because screening for PEPs and Prominent Influential Persons (PIPs) is an increasingly important aspect of Anti-Money Laundering (AML). South Africa’s Financial Intelligence Centre Amendment (FICA) Act calls for increased due diligence when it comes to screening PIPs and PEPs as a means to identify and prevent money laundering, corruption, bribery, and other crimes. Failure to properly screen clients could be an expensive oversight, leading to reputational damage, the erosion of public confidence and even fines that could potentially bankrupt your business.

Fortunately, as Vaughn Hechter of Altron FinTech explains, PIP and PEP screening don’t need to be an administrative headache. “There are databases of PEPs and PIPs,” he says. “It’s akin to doing a credit bureau enquiry where you enter details of the individual and then search for those individuals.” Altron FinTech’s suite of solutions, including risk management, real-time PEP and PIP screening, and digital onboarding, simplifies the process. Customisable solutions that integrate seamlessly with client systems ensure continuous compliance without worrying about new developments, either in South Africa or elsewhere in the world.

PEPs and PIPs, what are they?

The concept of Prominent Influential Persons (PIPs) and Politically Exposed Persons (PEPs) was introduced by the Wolfsberg Group, an association of twelve global banks that develops financial services industry standards for Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter Terrorist Financing (CTF) policies. To understand why PIP and PEP screening have become important, it’s worth noting that regulatory environments are becoming more stringent over time. Given the Financial Action Task Force’s (FATF) greylisting of South Africa in 2023, the increasing need for local fintechs to screen PIPs and PEPs is obvious.

Examples of PEPs and PIPs include:

Hechter explains that PIP and PEP databases are composed of media articles, criminal convictions, whether someone was accused of a crime, and other factors. “We’ve automated the entire process from ID verifications through to credit bureau reporting and PEP and PIP screening. If there is nothing that holds you back, we move to the next step, while keeping record of the AML screening that was concluded. You can always look back at your records and see what screenings were done.”

He adds that there’s no reason that a fintech can’t keep a PEP as a client, provided that no red flags are found. If a person is found to be a PEP once in their life, then they will always remain a PEP, and you never need to screen that individual for PEP again.” You are, however, required to report on the matter. Sanctions screening for terrorism is a different matter, however. “If a person is flagged, you don’t continue with the credit checks and you report. Your compliance officer should be trained and this and will know how to handle this.”

Keeping up with regulatory changes

Fintechs can prevent illicit financial activity through strong AML and risk management practices, but the constantly changing landscape presents a challenge, particularly for small teams. In a digital-first world, the borderless nature of fintech means that not only do these types of Financial Service Providers (FSPs) need to take local regulations into account, but they also need to be on top of developments elsewhere in the world.

Although significant strides have been made since the days of manually checking for PEPs and PIPs, complexities persist, particularly when it comes to navigating different jurisdictional requirements and addressing false positives in screening. But new developments, such as enhanced AI-driven risk analysis, biometric verification, and blockchain, can make tracking PEPs and PIPs much less labour-intensive or prone to errors. AI in particular can speed up checks and also reduce false positives by including a contextual analysis that makes risk assessment much more nuanced.

Commenting on these new innovations, Hechter says, “Altron FinTech makes a lot of effort to adapt to the changing regulatory environment. We invest in secure platforms and systems. We’ve built up the skill and a network of people who have worked with us over the years and continue to do so. We’ve got great working relationships with legislators and regulators, and regularly work with the banking environment.”

“Most importantly, we actively engage our customers, and then we customise systems and solutions to make it easier for them to be compliant.”