MLD4 impacts any regulated UK company providing financial services and the new requirements to screen for politically exposed persons (PEPs) present a particular challenge. MLD3 introduced the PEP definition but excluded domestic politicians.
Now companies can no longer ignore UK PEPs, their close associates and relatives. They need to identify whether they are dealing with these customers, and monitor them on an ongoing basis.
In the UK, we don’t have a national ID scheme so a legal identity is best classified around name, address and date of birth. These details aren’t always available on checklists internationally and nationally, so screening processes should be designed around the matching of name, residency, nationality and date of birth, but not too tight that you miss legitimate "hits"
We work in a "fuzzy" match world, where the definition of what data is used and how the data is matched becomes the single biggest concern from a compliance perspective. Are we hitting the right people all of the time? And then operationally, of foremost concern is, are we hitting the wrong people too often?
Most UK political figures and their UK relatives or associates have common names. Thorough regulatory screening will result in multiple hits, including false positives, which require valuable resources to follow up. Previous risk-based approaches to screening likely meant that UK politicians were of lower risk and experienced lower levels of enhanced due diligence. Processes and risk assessments must be adapted to the new regime.
Some countries, such as Spain, have already adopted a domestic screening requirement down to town and district level. Why? They needed to address political corruption and bribery.
Before we assume UK politicians are beyond such behaviour, we need to remember the parliamentary expenses scandals. While mostly low-level, it was still fraud, and highlights how activities with regulated entities must be closely examined. Surely these individuals and their close associates have a duty to be open about their financial dealings?
Think back to 2009, when a Sunday Times exposé revealed Lord Taylor’s willingness to intervene in the legal process for fees. This behaviour must be spotted and stopped. Why the UK is only just implementing requirements on domestic politicians is an important yet unanswered question.
The UK regulated sector is effectively becoming an extension of the police and investigatory authorities. The UK is unable to apply the necessary diligence without the help of the business community. With so many financial dealings across many organisations, a consistent approach will allow us to ensure our economy is as clean as can be, supporting the UK’s reputation as a financier of the world.
Dealing with new requirements is a challenge, but technology can help. The choice of a screening solution and how organisations match customer and prospects against the various databases becomes hugely important. The balance between excessive intervention, which creates friction to the customer experience, and operational cost needed to spot corruption, is vital. Robust screening systems, inclusive of UK politicians, must be implemented, monitoring activity and providing an understanding of the "usual" business you might expect.
This regulation is overdue, especially when we consider the impact of Brexit. It’s a catch up to a global standard. The UK can’t ignore domestic political corruption, especially now we’re re-patriating powers back to the UK government, potentially increasing the chance of bribery and corruption. What will be interesting is the reaction among our politicians to adopting MLD-type regulations beyond EU membership. Some politicians have already expressed disgust that they should be monitored, and their close associates and relatives will be also viewed with caution in their financial dealings.
The regulation is in the UK’s best interest and politicians should accept that they’re monitored because they’re in a position of power. History shows that some are capable of abusing their positions to gain financially. High profile cases have placed the UK under the spotlight for domestic and international corruption and if we’re to be seen as a great democracy everyone must play their part to ensure politicians are policed. As we’re about to hand almost absolute power back to Westminster, embracing the sentiment behind MLD4 is more fundamental to our social wellbeing now than ever before.
John Marsden, head of fraud and identity at Equifax