The 'Politically Exposed Person' Status - Part 2

05 May 2016

In the first part of the series we discussed some of the misconceptions surrounding a politically exposed person status and how this may result in an enhanced level of due diligence when arranging banking facilities or carrying out business transactions. It is important to realise however, that this cannot be viewed in isolation, and that the effect of external factors must also be taken into consideration. Whether we like it or not, we are living in an era of unrelenting change, to which even financial institutions are not immune.

Within every financial institution exists a risk committee whose role it is to agree the firm’s risk threshold; this will be based on various factors including its experience in certain jurisdictions, the level of investment or the personality of the firms leadership. This fine balancing act is also subject to external pressures that mean a shift in the status quo may result in previously agreeable relationships being considered beyond the ‘acceptable threshold’. This is known as ‘de -risking’, a process to which certain politically exposed person's may be quite susceptible. So, what are some of the factors that may trigger this process?

Media: A period of sustained media interest surrounding a particular theme, for example individuals associated with leaked documents may draw unwanted attention to the lender. Banks in particular are wary of the reputational risks associated with this following the banking crisis.

Geopolitics: Sanctions create a substantial burden for UK companies such as banks. The costs associated with compliance mean that they will often stop offering services to individuals or companies that are not sanctioned for fear of their links, or because they are unable to run checks.

Leadership: There was a perceived lack of leadership among many financial institutions during the economic crisis. In an effort to shake off this image, new board appointments may be inclined to take a far more conservative approach to their relationships.  One of the insights we identified from our research last year into “How People Who Value Companies Value Reputation” was just how many analysts referenced the financial services sector as a case in point for reputation risk management. In the past analysts and boards viewed reputation damage as a temporary issue that a good company could readily bounce back from. But now analysts consider even the most established businesses to be susceptible to long-term taint when they cannot convince shareholders of their ability to withstand and recover from reputation attack.

These are just three potential scenarios that may occur to alter the status quo, however, the approach should always be the same. It is about assessing any underlying sources behind your status and the potential connections identified as a consequence. If the information available is not factually accurate where is it being archived or republished? Then, in partnership with your advisers you can approach the media publication and database providers to correct any misinformation. 

To read part three of this politically exposed person series, click here.

To read part one of this politically exposed person series, click here.

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About the Author

Matthew Newton

SCR Consultant

Matthew is an experienced intelligence professional who provides investigative research services to help clients identify and manage reputation and privacy risks.

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