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Integrating perpetual KYC into an effective compliance roadmap

By Dr Henry Balani | Thu 27 April, 2023
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Encompass Corporation is proud to partner with Capgemini on its latest report on perpetual KYC (pKYC) – Integrating perpetual KYC (pKYC) into a regulatory compliance roadmap.

Dr Henry Balani, (Global Head of Industry & Regulatory Affairs, Encompass), partnered with Capgemini to highlight the regulatory requirements financial institutions need to account for to ensure the best possible KYC capabilities and outcomes. The report explores how pKYC empowers organizations to recognize and react to suspicious activity the moment it occurs, moving the dial from allowing risk to remain unnoticed for months or even years.

Knowing your customers

Knowing your customer (KYC) is viewed as the most important part of an anti-money laundering (AML) program. Banks are committed to satisfying the regulators, but often at a cost to their operational efficiency. With many banks using manual processes for their KYC lifecycle delivery, there is risk exposure to human error, money laundering and terrorist financing as well as operational inefficiencies.

In using traditional processes, it is questionable whether a bank truly understands its customers throughout their lifecycle. Traditional KYC, that adopts a process of periodic review based on risk appetite, looks at the risk associated with that entity in a snapshot in time. Moving to pKYC allows the bank to maintain an accurate customer record through an automated, integrated workflow of data that takes place in near real-time.

The 5th pillar of AML

With FinCEN formally labelling customer due diligence (CDD) as part of the 5th pillar of AML compliance, the journey to pKYC is not to be delayed. Effective ongoing CDD is expensive to deliver manually when entities can move from low risk to high risk in a short space of time. Bad actors can easily take advantage of a lapse in time before their next periodic review occurs.

The report highlights how various agencies recognize the move. Including the Office of the Comptroller of the Currency (OCC); Financial Action Task Force (FAFT); FinCEN and New York Department of Financial Services and how they view the role of technology innovation initiatives to continue the fight against financial crime.

Dynamic process automation to drive change

Technology is certainly driving the need for financial institutions to reimagine their KYC processes. The use of process automation in place of manual processes is just one element of how technology supports banks and financial institutions not only meet regulation, but also drive operational efficiencies.

At the heart of a pKYC operating model is the customer record. Using dynamic KYC process automation, Encompass builds real-time digital KYC profiles that form the digital baseline for event-driven refresh.

Delivering positive change supports the institution in making efficiencies, but also in achieving scalable growth.

Responding to customer behavior

Achieving continuous monitoring of customer behavior near real-time is achievable with technology that is readily available, and which regulators now look for. Integrations with CLM’s and CRMs promotes an approach of not only knowing a customer but truly understanding them.

When delivered correctly, pKYC takes a proactive approach to CDD, helping banks maintain up-to-date digital KYC profiles to achieve a state of continuous compliance.

Moving towards a state of pKYC

Financial institutions should view pKYC as an opportunity to reinvigorate their own processes and drive better customer risk identification and mitigation. Investing in technology to solve a complicated problem is a step towards achieving pKYC. But what does that journey look like?

The report highlights six industry best practices to build and optimize a pKYC program: –

  • Explainability/transparency
  • Human judgment
  • Residual risk
  • Data management, provenance, and governance
  • Model risk management
  • Metrics to demonstrate effectiveness

Read the full report here


Planning your journey to perpetual KYC

Learn more about our framework to plan your journey to pKYC


Author: Dr Henry Balani

Dr. Henry Balani is Global Head of Industry and Regulatory Affairs at Encompass. He is a noted industry thought leader and commentator on Regulatory Compliance issues and trends affecting the financial services industry. As a published academic, Dr. Balani also lectures on international business, economics, and regulatory compliance courses globally. Dr. Balani holds a Doctorate in Business Administration from the University of Wisconsin, an M.B.A. from Northern Illinois University in the USA, and a B.S. in Economics from the London School of Economics.

LinkedIn Profile | Dr Henry Balani

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