Who Bears the Ultimate Responsibility for Approving a FI's Relationship with a Politically Exposed Person (PEP)?

C

According to the Financial Action Task Force (FATF) and most regulatory authorities, including the ACAMS, the ultimate responsibility for approving a financial institution's relationship with a politically exposed person (PEP) lies with the senior management of the institution. Therefore, answer choice D, senior management, is the correct answer.

Politically exposed persons (PEPs) are individuals who hold, or have held, prominent public positions or functions in a foreign country or territory, such as heads of state, government officials, or high-ranking military officers. PEPs present a higher risk for money laundering, corruption, and bribery due to their influential positions and access to public funds. Therefore, financial institutions need to have strict due diligence procedures in place to manage the risks associated with PEPs.

While relationship managers and KYC analysts may be responsible for identifying and verifying the identity of PEPs and their sources of wealth, the ultimate decision to approve or reject a relationship with a PEP must be made by senior management. Senior management has the responsibility to ensure that the institution's risk appetite and compliance standards are appropriately balanced, and that the institution's exposure to reputational risk is minimized.

The EDD compliance officer may play a critical role in assessing and monitoring the risks associated with a PEP relationship, but their responsibility is not ultimate. They may provide recommendations and guidance to senior management, but they cannot approve or reject a PEP relationship without senior management's approval.

In summary, while various individuals within a financial institution may be responsible for managing the risks associated with PEPs, the ultimate decision-making responsibility rests with senior management.