Politically-Exposed Persons (PEPs)

The Reserve Bank of India (RBI) has revised the definition of Politically-Exposed Persons (PEPs) under its Know Your Customer (KYC) norms.

About Politically-Exposed Persons (PEPs):

• PEPs are individuals who are or have been entrusted with prominent public functions by a foreign country.
• This includes heads of states/governments, senior politicians, senior government, judicial or military officers, senior executives of state-owned corporations, and important political party officials.
• Bank accounts of PEPs are subject to additional KYC norms, and special due diligence must be undertaken by a senior bank official.

Need for the modifications:

• The modification aims to simplify banking transactions, including loan availing, for individuals falling under the category of PEPs.
• The previous norms related to PEPs were perceived as open-ended, lacking clarity in the definition, causing difficulties for individuals such as bankers, parliamentarians, and others.
• Concerns were raised about PEPs facing challenges in obtaining loans or opening bank accounts.

Guidelines for banks:

• If a bank or regulated entity conducts business with a PEP, it must undertake customer due diligence, and the decision to open the account should be made at a senior level.
  • These accounts are subject to enhanced monitoring on an ongoing basis.
• Banks are required to obtain information on the source of funds, as well as accounts of family members and close relatives of the PEP.
• If an existing customer becomes a PEP, the banks must apply enhanced due diligence to their accounts.

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