Does an institution have to refuse a PEP relationship?

Detailed Explanation

Not as a general rule. Most frameworks require enhanced scrutiny of PEPs, not prohibition — and blanket de-risking of an entire category has its own regulatory and social costs. The decision is a risk-appetite question: whether the institution can apply and sustain the enhanced controls the relationship demands, and whether senior management is prepared to own that. An institution without the capacity to monitor the relationship properly is in a worse position than one that declines it. What is not defensible is accepting the relationship, classifying it as high risk, and then applying standard controls anyway. You cannot eliminate the risk — you identify, monitor and control it, and you evidence that you did.