Which of the following statements regarding PEP relationships is correct?

• A. Senior management approval is required before taking a PEP client.
• B. Police checks are mandatory.
• C. Written confirmation of PEP status from the client is required.
• D. No special handling is required for PEPs.

Answer: (A)

When a client is identified as a Politically Exposed Person, the action hinges on heightened risk controls. PEPs carry greater risk of corruption or money laundering because of their public role, so firms require governance-level scrutiny before establishing or continuing a relationship. Senior management approval ensures the institution properly assesses the risk, assigns appropriate resources to due diligence, and commits to ongoing monitoring. This approval acts as a checkpoint to prevent onboarding or maintaining a PEP relationship without proper risk oversight, and it is typically accompanied by enhanced due diligence, ongoing monitoring, and scrutiny of sources of funds and wealth.

Police checks are not a universal mandatory step for PEPs, and PEP status is determined through reliable sources and verification rather than relying on client confirmation. Also, treating PEPs as needing no special handling would ignore the elevated risk these clients pose.