Crypto Exchanges Face Tough Rules for Serving Politically Exposed Persons

A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public position, such as heads of state, senior government officials, judges, military leaders, or executives at state-owned companies. Close family members and business associates are also considered PEPs.

In the crypto space, exchanges and wallet providers must identify these users during onboarding, just like traditional banks do. However, blockchain transactions can move across borders in minutes with less friction than a wire transfer, making crypto attractive to those trying to move dirty money quickly.

Exchanges treat PEPs as higher-risk customers and watch their transactions more closely. This includes conducting enhanced due diligence (EDD) on these individuals, which involves verifying the source of their wealth, getting sign-off from senior compliance staff before opening an account, monitoring transactions more frequently, and reviewing the relationship regularly.

Regulators expect a risk-based approach, where exchanges assess how risky each PEP is and apply checks that match that risk level. Some exchanges choose to avoid PEPs entirely due to the compliance burden being too costly for their business model, while others build dedicated compliance teams to serve this group properly.