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Will pKYC replace traditional KYC refresh processes?

By Howard Wimpory | Wed 18 October, 2023
African American man is looking at a screen which is reflecting on his gold-rimmed glasses. He's standing in front of a large window that looks out over a city at night.

In the face of evolving technology and the ever-changing landscape of regulatory compliance, a new approach to know your customer (KYC), known as perpetual KYC (pKYC), is gaining momentum. But will pKYC replace traditional KYC refresh processes for banks?

Howard Wimpory, (Transformation Director, Encompass), explores the differences and discusses whether pKYC might eventually overtake the former.

Traditional KYC: A brief overview

Traditionally, KYC in commercial banking requires comprehensive due diligence at onboarding and throughout the lifecycle.

Adopting a risk-based approach, banks periodically look back and check if the client has been behaving in line with expectations. The bank will then assess whether anything material has changed that affects their risk profile. High risk customers are typically reviewed once a year, while medium and low risk customers are reviewed every three to five years.

Regardless of the review cycle, these refresh processes are labor-intensive when conducted manually. Often unnecessarily repeating extensive documentation gathering, verification, and screening to unravel ultimate beneficial owners and corporate structures that were already performed at onboarding. Frequently, no material change has occurred and yet the process of refresh is still followed.

Challenges of traditional manual KYC in commercial banking

  • Unknown risk exposure
    KYC records can quickly become outdated as corporate clients experience changes in ownership, structure, and key personnel. This leaves the bank with unknown risk exposure between refresh cycles.
  • Resource intensive
    Traditional manual processes require substantial workforce, time, and financial resource. With large volumes of client records requiring regular refresh and remediation, banks are unable to manage the workload. Subsequently leading to unmanageable backlogs and unknown risk exposure.
  • Customer frustration
    Repeated documentation requests and outreach strain the relationship between banks and their corporate clients, leading to dissatisfaction.

The emergence of pKYC

pKYC represents a paradigm shift in commercial banking. Instead of relying on static data, pKYC employs advanced technology, data analytics and automation. Client profiles are continuously monitored providing the opportunity for a complete re-design of the traditional refresh operating model.

Advantages include:

  • Real-time view of clients
    Changes in client profiles trigger immediate alerts for further investigation.
  • Enhanced risk mitigation
    Following a pKYC approach mitigates risk by updating information faster through identifying, evaluating, and acting on changes that may have previously gone undetected until the next scheduled, periodic review.
  • Efficiency and cost savings
    Automation and data-driven processes reduce the resources burden on banks by improving straight through processing (STP). Consequently, this enables them to allocate resources more efficiently by only reviewing cases where material changes are identified.
  • Improved client experience
    Only those clients with detected material changes are asked to resubmit information, meaning fewer outreach requests. As a result, corporate clients benefit from an experience that has less friction, reduced documentation requests and enhanced compliance transparency.

What will it take to move to pKYC?

While pKYC offers promising advantages, its widespread adoption in commercial banking hinges on several factors which will take time to overcome:

  • Aligning legacy systems
    Banks need to invest in new technology and existing infrastructure to implement pKYC effectively. To de-risk the re-engineering it is recommended to adopt an incremental approach towards a pKYC model.
  • Data
    Banks need to have a comprehensive data strategy in place and up-to-date customer data profiles if they are to achieve a pKYC program. Traditional KYC will consist of disparate systems. These make it difficult to deliver live feeds of information that generate the triggers. Automation and technology, such as Encompass, provides the updated data attributes and documents as part of a digital KYC profile needed to investigate and risk assess alerts to enable a move towards a pKYC model.
  • Transformation strategy
    Corporate banks should be willing to embrace pKYC and understand the value it brings in terms of efficiency, security, and improved customer experience. Subsequently KYC transformation must become a part of the bank’s wider strategy for change.

The road ahead

On the question of ‘will pKYC replace traditional KYC refresh processes?’, in my opinion, for the medium-term, periodic KYC and pKYC will co-exist. Not least driven by the need to parallel run both models to build trust in the capability of pKYC. Banks taking a risk-based approach will have a necessity for each KYC approach. Determined by the client risk and availability of jurisdictional data coverage.

There will always be those cases that will fall out of the pKYC model and still need that added scrutiny of a manual review.

What I envisage is that the proportion of the total refresh workload subject to a pKYC model will increase over time and that the current, periodic method will become the exception rather than the current rule.

Author: Howard Wimpory

Howard works with Tier 1 banks to digitally transform their KYC onboarding and refresh processes. He has held a number of executive-level operational roles with a major global bank including leading their wholesale KYC Onboarding and Refresh functions. His most recent role prior to Encompass was as Managing Director, Group Financial Crime Operations position at Barclays Bank, where amongst other functions, he was accountable for leading KYC Remediation of Corporate and Investment Bank Client records to FCA committed timeline.

LinkedIn Profile | Howard Wimpory

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