VIDEO: BSA Exam Manual PEPs
In this Compliance Clip (video), Adam talks about how the section for politically exposed persons (PEPs) in the BSA Exam Manual was recently updated in December of 2021. While the regulators have said that the BSA Exam manual updates shouldn’t be anything new, the changes to the PEP section of the manual are quite interesting as it seems to back peddle from what was said in the 2014 edition. This video is a must watch for your BSA/AML team.
If you want to take a deep dive on the recent changes to the BSA Exam Manual, take a look at our current BSA Annual Update program where we discuss all three of the 2021 revisions to the exam manual in detail. Or you may also check out our Spring 2022 Quarterly Compliance Update, which will be available this May, as we will be discussing the December 2021 changes to the BSA Exam Manual as our special topic.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about politically exposed persons and how the section for PEPs in the BSA Exam Manual was recently updated in December of 2021. I'm not going to dive into this as deep as the changes that took place, I'm not going to cover every change because I did cover those in our BSA Annual Update, the Spring 2022 edition and in our Quarterly Compliance Update, the Spring 2022 edition as well. So if you want to take a deep dive, take a look at those products, we'll talk about those at the end of this video. But I wanted to share these with you because I find this as a really interesting topic.
As a background, what's been happening is that the FFIEC has been issuing a number of updates to the BSA Exam Manual. The most recent update, at the time of this recording, was on December 1st of 2021. The prior updates occurred back in April 2020, then February 2021, then June of 2021 and then, of course, the most recent or fourth revision in December of 2021. Essentially what's happening is the FFIEC seems to be going through systemically and updating the manual about four sections at a time. Previously, they would do a revision to the entire manual and release it, and then wait five years or however long it was, and then do an entire revision and release it. Now they’re just seeming to update this on a smaller basis and just doing several sections at a time about twice a year on average, even though 2021 saw three, but 2020 only saw one. So about twice a year on average is what it's been.
What they said in the beginning of this process was that the agencies were saying to financial institutions that these changes should not be interpreted as new requirements or even an increased focus on certain areas. They've said that this is just the language, it's everything we should already know, they're just something in the manual for any changes that may not be reflected in the manual, but these should not be new requirements or new burdens to financial institutions. However, when we get to the section on politically exposed persons, it seems like there is a pretty big change in tone, to put it that way. Let's talk about this just for a brief minute here.
As a background, a history on politically exposed persons, the Financial Action Task Force, which of course is a group of nations, which includes the United States, which come together and set standards for all countries, including the United States, the Financial Action Task Force first issued mandatory requirements covering foreign politically exposed persons, their family members, and close associates way back in June of 2003. We first heard about PEPs back in June of 2003 from the Financial Action Task Force. Then what we saw was the BSA Exam Manual and the regulatory requirements, we had to deal with them in the United States, pretty much aligned with that. Talking about covered foreign politically exposed persons, their family members and close associates. That's what we have heard from FinCEN for years.
What happened was in February of 2012, the Financial Action Task Force expanded the mandatory requirement to include domestic politically exposed persons and PEPs of international organizations in line with Article 52 of the United Nations Convention Against Corruption. So they made a change, but the United States never really made a change to their actual laws as far as I know. The regulations and all the guidance still reference foreign politically exposed persons, their family members and close associates. So the 2014 manual for politically exposed persons included a long section talking about politically exposed persons. The section included a discussion of what PEPs generally include such as Senior foreign political figures, their immediate family and close associates. This was what was in the manual up until December of 2021. Now, the 2021 changes to the section on politically exposed persons actually removes this discussion and instead directs the readers to a footnote to the appropriate resources. This is pretty interesting as far as the change, but I guess it's expected because the Financial Action Task Force has made some changes that no longer align with the initial talking of senior foreign political figures.
Let's look at what the 2014 version of the manual said then we'll look at what the 2021 version of the manual said. What the 2014 version of the manual said was this, “The term politically exposed persons generally includes a current or former senior foreign political figure, their immediate family, and their close associates.” That's what the 2014 version of the exam manual said. Now the current version, the December 2021 version of the BSA Exam Manual, the section on politically exposed persons or PEPs now says this, “Bank Secrecy Act/Anti-Money Laundering regulations do not define the term politically exposed person or PEP and the term should not be confused with senior foreign political figure (SFPF), which is a subset of politically exposed persons. The term PEP is commonly used in the financial industry to refer to foreign individuals who are, or have been entrusted with a prominent public function, as well as to their immediate family members and close associates.” Now, why in the world would the financial industry commonly refer to PEPs as this? Well, it's because FinCEN used to call it that. They say that let's take a step back, they're actually backpedaling here a little bit, at least that's what it seems to me, the backpedaling saying that actually BSA/AML regulations don't technically define the term politically exposed persons. So let's take a step back and realize it's not just senior foreign political figures. However, we acknowledge that financial institutions have typically referred to it as this.
That is what the change was in relation to politically exposed persons. What I would recommend is if you haven't read the section on politically exposed persons of the BSA Exam Manual, take a read of it. If you want to take a deep dive into the changes of that section and the other three sections that were changed, where one was actually added in the December 2021 revisions for the BSA Exam manual, you can take a look at one of our two programs. Our BSA Annual Update, the Spring 2022 version of our BSA Annual Update actually covers this in detail. We actually cover all three exam manual changes that took place in the year of 2021. Or, our Spring 2022 Quarterly Compliance Update also discusses this topic as a special section where we take a deep dive into all of those December 2021 updates to the BSA exam manual.
As you can see from this presentation, this Compliance Clip today, we actually go into a lot of nuances in our BSA programs, especially our BSA Annual Update. We go into a lot of nuances of the little details that actually do make a difference in the world of BSA and AML. So we're not just doing high level all the time. We do take some very deep dives and I do call that a very advanced program, looking at a lot of things that potentially affect the BSA /AML world.