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Why Perpetual KYC is essential to tackling financial crime

By Wayne Johnson | Mon 2 August, 2021

Banks and institutions within the financial services sector face a constant challenge when it comes to identifying and rooting out money laundering, as well as adapting to ever-changing regulatory requirements.

As is often the case with the rapidly evolving threat of financial crime, regulators and enforcement bodies are often playing catch up, giving organizations little time to upgrade their technology, policies and resources in order to remain compliant.

The ‘KYC framework’ explained

For several years now, Know Your Customer (KYC) has provided a framework by which organizations can carry out due diligence on existing and potential customers, enabling ratification of issues such as beneficial ownership, identity verification and other key areas. This process has evolved over time, from a largely back-office manual function, managed by analysts and administrators, to an increasingly automated approach, whereby software can be used to complete KYC within a short space of time, saving banks time and money.

Today, KYC is conducted at specified intervals – traditionally one, three and five years – for the duration of a customer relationship. The time between these periodic reviews is dependent on the level of perceived risk posed by that customer, which is determined during the onboarding process. This means that KYC is immediately out of date, and banks are exposed to significant risk until a review is conducted.

This is why the concept of ‘perpetual’ Know Your Customer (pKYC) is becoming an increasingly attractive proposition. pKYC is a concept that refers to a digital operating model in which all relevant sources of information are continuously monitored for events that would impact a customer’s risk profile, and that automatically assesses and acts on this information.

Digital transformation has changed processes

Digital transformation has already started changing due diligence processes and regular risk assessments drastically, and many organizations have committed to ongoing and digitally enabled data reporting or client onboarding, often facilitated by cutting-edge regulation technology (RegTech). pKYC, therefore, is the next step in the evolution of global regulatory compliance.

It represents an innovative approach that would provide financial institutions with an accurate and up to date view of their regulatory risk at all times. As a digital operating model, pKYC will drive down operational costs and ensure the auditability of compliance processes, both significant challenges facing regulated firms today.

pKYC represents a foundational change to regulatory compliance, and we are at the very start of the journey. The benefits realised by the pioneers of this new way of working will be significant across the entire organization. As well as the clear benefits to regulatory compliance, pKYC improves an organization’s ability to identify new business opportunities within their existing customer base. Going further, research carried out by Encompass’ Head of Delivery and Customer Success, Dr Henry Balani, found that regulations and the quality of compliance has a direct positive impact on European bank valuations.

The industry is moving towards this type of review process because of its many benefits. KYC operational teams are now sharing information when carrying out client Anti-Money Laundering (AML) risk reviews, which has never been done. To build up the systems necessary for this evolution, financial institutions are starting to develop and deploy more automation throughout their overall technology solutions and efforts, which signifies the potential of pKYC.

This article first appeared on Only Strategic.


Delivering the future of KYC begins with the needs of the firm

Key takeaways from the first session of the pKYC Advisory Board

Author: Wayne Johnson

Wayne co-founded Encompass in Sydney and took the Encompass product to market there in 2012. Since then, as CEO he has led the international expansion of Encompass, including the launch in the UK in 2015 and Singapore in 2018, and recognition as one of the UK's most influential RegTech firms. Prior to Encompass, Wayne was co-founder and CEO of Software Associates, until the company's successful exit to a Hong Kong listed Company.

LinkedIn Profile | Wayne Johnson

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