Understanding the present state of pKYC

Perpetual KYC (pKYC) can revolutionize how banks deliver Know Your Customer (KYC) processes. To understand the present state of pKYC we interviewed our transformation expert Howard Wimpory to discuss further insights.

What is pKYC?

Unlike traditional scheduled periodic reviews, pKYC aims to initiate a review in near real-time whenever a change to the client’s KYC profile is detected.

This continuous approach ensures that customer information and risk categorisation remains current. Additionally, it reduces the need for a manual review of cases where no material change has occurred since the last review.

Is there a growing interest in pKYC?

Increasingly stringent KYC regulations demand more effective compliance solutions and have attracted a growing interest in pKYC. Additionally, there is a pressing need for improved process efficiencies within banks.

pKYC offers a more effective risk investigation and assessment model by enabling responses at the time a change is detected, rather than a set period of time which can leave the bank exposed to greater risk. Advances in technology now make it easier to transition towards a pKYC model and take advantage of the significant benefits:

• Enhanced compliance: Continuous monitoring ensures compliance with regulatory requirements, reducing the risk of fines and reputational damage.
• Operational efficiency: pKYC automation reduces the need for manual interventions and focuses analysts’ time on cases where material change has been detected.
• Improved customer relationships: Through the reduction of outreach, where a bank can make an informed risk re-assessment, using data already available to them.

What are the challenges of implementing pKYC?

One of the primary hurdles in the transition to pKYC is the need to digitize clients’ KYC profiles, a prerequisite that can be daunting. Implementing pKYC can take up to three years and requires sustained effort and investment over a prolonged period. To address this, it is effective to adopt a staggered implementation strategy, viewing the process as a series of small, incremental gains.

Gaining senior (executive level) sponsorship is crucial to ensure sustained funding throughout the transition. This support not only secures the necessary resources but also reinforces the importance of the initiative across the organization.

Building trust in the new pKYC model is key, requiring stakeholders to be convinced of its reliability and benefits compared to traditional methods. By breaking the process into manageable stages and celebrating each milestone, financial institutions can demonstrate the tangible benefits realized at every step. This method reassures stakeholders and garners their support throughout the transition.

Partnering with trusted regtech firms like Encompass can further accelerate the journey to full pKYC, ensuring control over milestones and progress while leveraging their expertise. Engaging with such partners and celebrating each stage of the transition helps maintain momentum and highlights the benefits realized, reinforcing the value of the new model to all involved.

Will 2024 be a pivotal year for pKYC adoption?

While 2023 saw pKYC remain the desired target operating model (TOM) across most Tier 1 banks, cost pressures significantly limited the investment appetite. As a result, few banks made substantial progress in their transition to pKYC.

In 2024, we are observing several key trends that indicate a growing trust in its capabilities that are setting the stage for accelerated adoption.

• Implementation of AI: Banks are beginning to deploy AI-driven solutions to automate the analysis of customer data. This enables real-time updates and anomaly detection, which are crucial for the continuous monitoring central to pKYC.
• Enhanced data integration: There is a growing focus on consolidating customer data from various sources. This integration is a critical step towards achieving the seamless data flow necessary for effective pKYC processes.
• Customer experience: Banks can now reassess risks promptly based on real-time data, minimizing unnecessary outreach. This approach not only improves efficiency but also fosters stronger customer relationships by offering proactive and tailored interactions.
• Partnerships and collaborations: Banks are increasingly forming strategic partnerships with fintech’s specializing in pKYC. These collaborations are helping to accelerate the implementation by leveraging specialized expertise and technology.

How does corporate digital identity affect pKYC?

Firstly – as a brief overview. CDI refers to the digital representation of a company’s identity, encompassing detailed information such as registration details, ownership structure, financial records, and operational data. It is analogous to an individual’s digital identity but is tailored to the specific needs and complexities of corporate entities. CDI integrates data from various sources, both public and private, providing a comprehensive and accurate picture of a company’s identity in the digital space. By incorporating CDI into pKYC processes, banks can monitor changes, significantly increasing the scope of data available for analysis.

It also streamlines the pKYC process by reducing the need for repetitive data submissions and manual checks. Subsequently making the process more efficient for both banks and their clients. This not only improves the overall customer experience but also helps banks maintain a more effective risk detection model. As pKYC evolves, CDI will play an increasingly crucial role in ensuring thorough and precise compliance management.

Moving forward from the present state of pKYC

Currently, the technology available for pKYC is indeed ahead of the industry’s widespread adoption. Establishing trust in new technology remains a significant challenge. The banking sector has shown cautious optimism, balancing innovation with the need for proven reliability and regulatory compliance.

A critical factor that could accelerate the journey toward better KYC and AML processes is a shift in the dynamic between regulators, enforcement agencies, and regulated entities. By focusing on improved combined outcomes, these stakeholders can move beyond the ‘good enough is OK’ mindset.

Investment appetite plays a crucial role in this equation with some banks seeing pKYC as a ‘good to have’ rather than a ‘must do’. As we navigate these factors, building confidence in pKYC’s capabilities and demonstrating tangible benefits will be pivotal in shaping its future in the banking industry.