\n| IRDAI Master Guidelines on AML\/CFT, 2022<\/td>\n | Clause 3.14 (amended 2023)<\/td>\n | PEP proposals require approval not below Head (Underwriting)\/Chief Risk Officer level<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/p>\n Two consequences follow directly from this framework and shape everything below. First, REs are not required by Indian law to screen for domestic officeholders as PEPs \u2013 though many still capture prominent domestic officials under a general high-risk\/CSC category as a matter of internal policy, which is a separate exercise from PEP compliance proper. Second, because the definition and the EDD trigger are aligned across RBI, SEBI and IRDAI, a single group-wide PEP procedure can generally serve a diversified financial group, provided sector-specific approval thresholds (see Section 5) are respected.<\/p>\n 2. Step-by-Step Procedure for Onboarding a New Foreign PEP<\/h3>\n\n- Identify at the point of customer due diligence (CDD): Every new customer and every beneficial owner behind a corporate, trust, or partnership client must be screened against a foreign PEP database as part of standard CDD \u2013 not as an optional add-on. This is a risk management system obligation under RBI\u2019s KYC Master Direction and the equivalent SEBI\/IRDAI provisions, and it applies regardless of the product, transaction size, or perceived materiality of the customer.<\/li>\n
- Confirm the match before escalating: Verify the screening hit against secondary identifiers \u2013 date of birth, nationality, passport number, declared occupation, and (where available) a photograph \u2013 before treating the alert as a confirmed PEP determination. See Section 8 for the full match-resolution procedure.<\/li>\n
- Do not decline automatically: Indian regulations give REs the option to establish a relationship with a confirmed foreign PEP; refusal is not mandated and blanket refusal is poor practice. The relationship proceeds through enhanced conditions rather than an automatic bar.<\/li>\n
- Apply enhanced due diligence (EDD) before the relationship is active: This includes verifying identity through Officially Valid Documents, establishing source of wealth (how the customer accumulated their overall net worth) and source of funds (where the specific money to be used in the relationship originates), and understanding the intended nature and purpose of the relationship.<\/li>\n
- Route the file for senior management approval: No foreign PEP account may be opened without approval at the seniority threshold prescribed by the relevant regulator (Section 5). The approval must be obtained before the relationship is activated, not as a retrospective ratification.<\/li>\n
- Assign a documented risk rating: Classify the customer using the risk categorisation approach in Section 6, and record the rating and its rationale in the customer file.<\/li>\n
- Set the ongoing monitoring plan: Define the review frequency (Section 7), transaction monitoring thresholds, and any product restrictions or transaction caps applicable to the relationship, before the account goes live.<\/li>\n
- Extend the same treatment to family members and close associates: Where the customer is a family member or close associate of a foreign PEP, or where a foreign PEP is the beneficial owner of the account, the same EDD, approval, and monitoring conditions apply, per SEBI\u2019s explicit extension of PEP norms to family members and close relatives\/associates, and equivalent RBI\/IRDAI practice.<\/li>\n
- Register on CKYCR and retain records: Upload the KYC record to the Central KYC Records Registry as required and retain all PEP-related documentation for a minimum of five years from account closure or the end of the business relationship, per the PML Rules\u2019 record-keeping requirements.<\/li>\n<\/ol>\n
3. Documentation Checklist for a Foreign PEP File<\/h3>\nRegulators and auditors will test the file, not the policy. At minimum, a foreign PEP customer file should contain:<\/p>\n \n- Officially Valid Documents establishing identity and address, consistent with standard CDD requirements.<\/li>\n
- A record of the PEP screening result: database\/source used, match details, and the secondary identifiers that confirmed the match (screenshots are useful records).<\/li>\n
- A source of wealth statement: a narrative, supported by evidence (tax filings, business ownership records, asset disclosures, salary or pension documentation, or equivalent), explaining how the customer\u2019s overall wealth was accumulated.<\/li>\n
- A source of funds statement: evidence specific to the funds being placed with or routed through the RE for the relationship or transaction in question, which is not the same exercise as source of wealth and should not be conflated with it.<\/li>\n
- Beneficial ownership documentation, where the PEP is a beneficial owner rather than the direct customer, including the ownership\/control chain down to the natural person.<\/li>\n
- The nature and purpose of the business relationship, including expected product usage, anticipated transaction volumes, and the commercial or personal rationale for the relationship.<\/li>\n
- Sanctions and adverse media screening results, run in parallel with PEP screening, with disposition notes for any hits.<\/li>\n
- The risk rating assigned, with the rationale recorded against the framework in Section 6.<\/li>\n
- The senior management approval record: name, designation, date, and explicit sign-off referencing the PEP determination \u2013 not a general account-opening approval that happens to also cover a PEP.<\/li>\n
- The ongoing monitoring and review schedule agreed for the relationship, including the date of the next scheduled review.<\/li>\n<\/ul>\n
4. Risk Categorisation of Foreign PEPs<\/h3>\nUnder the risk-based approach that underpins Indian KYC\/AML regulation, foreign PEPs sit in the high-risk customer category as a starting position and this is consistent with FATF\u2019s own treatment of foreign PEPs as always high risk, regardless of a firm\u2019s internal assessment. The categorisation exercise for a foreign PEP is therefore less about deciding whether the customer is high risk (they are, by definition) and more about calibrating the intensity of EDD and monitoring within that high-risk tier. A defensible internal categorisation should still record the following factors, even where the headline rating does not change:<\/p>\n \n\n\nFactor<\/strong><\/td>\nWhat to Record<\/strong><\/td>\n<\/tr>\n<\/thead>\n\n\n| Seniority of the public function<\/td>\n | Head of state\/government vs. a more junior or ceremonial foreign office; current vs. former officeholder<\/td>\n<\/tr>\n | \n| Jurisdiction risk<\/td>\n | Corruption\/governance indicators for the relevant foreign jurisdiction, and whether it appears on any FATF high-risk or increased-monitoring list<\/td>\n<\/tr>\n | \n| Sector exposure<\/td>\n | Whether the PEP\u2019s role touches sectors FATF flags as more exposed to corruption \u2013 extractives, defence, large infrastructure, state procurement<\/td>\n<\/tr>\n | \n| Transparency of wealth<\/td>\n | Whether source of wealth\/funds documentation is clear, consistent and independently verifiable, or vague and undocumented<\/td>\n<\/tr>\n | \n| Product and channel risk<\/td>\n | Private banking, correspondent banking, trade finance, or cash-intensive products carry materially higher inherent risk than a vanilla retail account<\/td>\n<\/tr>\n | \n| Beneficial ownership complexity<\/td>\n | Layered corporate\/trust structures increase both the difficulty of verification and the residual risk<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Family members and close associates of a confirmed foreign PEP should ordinarily be assigned the same high-risk rating as the PEP, since Indian regulatory guidance (most explicitly SEBI\u2019s Master Circular) extends PEP-equivalent treatment to these accounts by design, precisely because they are considered to be commonly used to layer PEP-linked funds.<\/p>\n 5. Management Approval Hierarchy Under Indian Regulations<\/h3>\nApproval seniority for foreign PEPs is explicitly regulator-specified and should not be delegated below the prescribed threshold, regardless of internal organisational convenience:<\/p>\n \n- Banks and NBFCs (RBI-regulated): Senior management approval is required to open or continue a PEP account \u2013 in practice, at least one level above the officer (or higher) who would ordinarily approve a standard account, commonly interpreted as Regional Manager level or above, with the Principal Officer (a management-level appointee under the PML Rules) informed and involved in the decision.<\/li>\n
- Securities market intermediaries (SEBI-regulated): PEP relationships are approved through the intermediary\u2019s designated senior compliance\/risk authority as part of the Client of Special Category approval workflow, with the Principal Officer and Designated Director holding oversight responsibility for the category as a whole.<\/li>\n
- Insurers (IRDAI-regulated): PEP proposals require approval not below the level of Head (Underwriting) or Chief Risk Officer \u2013 a materially senior, named threshold that is stricter than the general high-risk customer approval process for other CSC categories.<\/li>\n<\/ul>\n
In every case, the approving official\u2019s sign-off should be a distinct, documented act referencing the PEP determination specifically rather than an incidental part of a broader account-opening authorisation. Where an RE operates across multiple regulated entities within a group (bank, broker-dealer, insurer), it is good practice to align on the stricter of the applicable thresholds group-wide rather than running divergent approval levels for what is, in substance, the same customer risk.<\/p>\n 6. Ongoing Monitoring and Periodic Review<\/h3>\nA foreign PEP relationship does not end at onboarding; the EDD obligation is continuing. Practical monitoring should include:<\/p>\n \n- Enhanced transaction monitoring with tighter thresholds and more sensitive alerting than applied to standard customers, reviewed by a compliance analyst rather than relying solely on automated clearance.<\/li>\n
- Periodic KYC refresh at a frequency shorter than the standard high-risk cycle commonly annual, and more frequent where adverse media or unusual transaction patterns emerge.<\/li>\n
- Re-screening against updated PEP databases at each periodic review, and on a rolling basis where the RE\u2019s screening technology supports continuous monitoring, to capture status changes (e.g., promotion to a more senior foreign office, or a documented exit from office).<\/li>\n
- Adverse media monitoring on an ongoing basis, not only at onboarding, given that corruption-related allegations against a foreign PEP typically surface well after the original due diligence was completed.<\/li>\n
- Escalation triggers built into the monitoring programme: transactions inconsistent with the documented source of wealth\/funds, unexplained third-party payments, or a change in the customer\u2019s declared purpose for the relationship should all trigger a fresh EDD review rather than routine monitoring sign-off.<\/li>\n
- Board or Audit Committee visibility into the PEP portfolio numbers onboarded, exited, under enhanced review, and any escalations on a periodic basis, consistent with the governance expectations underpinning the board-approved KYC\/AML policy.<\/li>\n<\/ul>\n
7. When an Existing Customer Becomes a Foreign PEP<\/h3>\n7.1 How This Is Typically Identified<\/strong><\/p>\nBecause the RBI\/SEBI\/IRDAI definition is scoped to foreign public office, this scenario most commonly arises for NRI customers, customers with dual\/overseas nationality, or customers who relocate abroad and subsequently take up a foreign public appointment. REs typically identify the change through: periodic re-screening of the existing customer base against refreshed foreign PEP databases (the single most reliable method, since customers rarely self-report a foreign appointment); KYC update\/renewal cycles, where updated occupation or address details reveal a foreign public role; transaction pattern changes (for instance, foreign government-linked salary or allowance credits); and adverse media or public source monitoring.<\/p>\n 7.2 Procedure to Follow<\/strong><\/p>\n\n- Flag and escalate immediately to the Principal Officer or designated AML\/compliance function on confirmation of the new foreign PEP status \u2013 do not wait for the next scheduled periodic review.<\/li>\n
- Conduct retrospective EDD as though onboarding the relationship afresh: verify identity and address are current and build the source of wealth and source of funds documentation that was not required (or was less rigorous) when the account was originally opened as a non-PEP relationship.<\/li>\n
- Review past transaction history against the newly available risk profile, to check for any activity inconsistent with the customer\u2019s now-disclosed public role.<\/li>\n
- Obtain senior management approval to continue the relationship, at the same seniority threshold that would apply to a new foreign PEP onboarding under Section 5 \u2013 this is not optional simply because the customer pre-dates the status change.<\/li>\n
- Re-rate the customer\u2019s risk classification to high risk (or confirm\/escalate the existing rating) and update the monitoring plan and review frequency accordingly.<\/li>\n
- Identify and review linked accounts \u2013 family members, joint account holders, and any entities where the customer is a beneficial owner \u2013 since these may also require reclassification once the primary customer\u2019s status changes.<\/li>\n
- Document the entire review, including the date the status change was identified, the source of that information, and the outcome of the re-assessment, even if the ultimate decision is to continue the relationship unchanged.<\/li>\n<\/ol>\n
7.3 Dos and Don\u2019ts<\/strong><\/p>\n | | | |