Perpetual KYC is not another buzz word thrown around in the compliance world. It’s the future of KYC and today we’ll lay down all the reasons that make it so important.
Are you ready? Let’s dive right in.
What Is Perpetual KYC?
Perpetual KYC refers to a continuous review of clients and entities. Traditional KYC has been conducted in periodic reviews, allowing a vast window of opportunity for change. What perpetual KYC does is track and monitor entities in question, giving you real-time data.
Perpetual KYC: The Benefits
Perpetual KYC is essentially changing the paradigm of an entire industry. What does this mean for businesses? In layman's terms, this means a huge investment in fintech.
To even begin discussing achieving perpetual KYC, businesses need to look at top-of-the-range platforms that can manage, monitor and analyze data.
Cost is the obvious change but not the only one. Businesses will have to make a huge switch in their internal structure, strategy and culture as well as train staff to bring them up to speed with the new technology.
Perpetual KYC is asking a lot of businesses, but what does it have to give back in return? The answer is a lot more. Here are the benefits of perpetual KYC that bill it as the future of KYC.
Say Goodbye To Remediation
KYC remediation refers to the process of frequently updating customer data and profiles in order to keep them up-to-date in terms of accuracy, regulatory requirements and risk mitigation.
That sounds like a cumbersome process because...it is. The whole process drains internal department resources, engaging a lot of staff. Human resources is not remediation’s greatest pitfall.
According to research from Lysis Group, remediation will range from £1500 for a mature process with appropriate systems and controls, to upwards of £600+ for an institution with complex and inefficient processes.
How does perpetual KYC tie into this? It essentially negates the need for remediation. The whole idea behind perpetual KYC is the regular updating of customer data and profiles. You’re constantly up-to-date with your entities, never having to revisit them and conduct research from scratch.
You’re always following regulatory requirements and you’re always able to assess the true risk associated with an entity since the data you have on them is accurate.
No More Angry Customers
Here’s how the KYC process has been working since...forever. Whenever it’s time for the periodic review of a company, customers are bombarded with emails requesting documents, proofs, excel files and all the other beautiful things that end up getting lost in long email chains.
As you can imagine, digging through paperwork is not the most enjoyable of endeavours for people, especially when it’s not related to any profit-making activity. What ends up happening is that these requests do not get prioritised, managers send follow-up emails, creating friction between the two.
Perpetual KYC resolves this relationship problem since customer information will be updated based on event-based triggers and not periodic reviews. There will no longer be a need for this messy back and forth.
Customers will focus on their job and the KYC process will run in the background, automatically updating data.
Reducing Overall Risk
Timing is everything when it comes to calculating risk exposure. Picture this: you have a client that you have always labelled as low-risk. You only do a full KYC check every 2 years since the reports and data always come back squeaky clean for them.
Do you know what that means? That you are essentially trusting that client to remain lawful and clean for 2 entire years. Your KYC review is outdated the moment you finish it.
Assessing risk is not a one-time exercise, it’s a living, breathing organism. It’s something that you need to be on top of at all times. The word trust has no business in this type of business. Risk is something you can’t take risks with and the only way to ensure you have your bases covered is by letting data lead the way.
Transaction data is an extremely important source of information in building a robust customer profile. It allows you to have insight in behavioural patterns and draw conclusions on the risk level of your entity.
During the current mode of operation, businesses are not able to do that because looking at transaction data retrospectively does not offer the same value.
With perpetual KYC, you are ensuring that any transaction abnormality can be run against the customer’s profile and raise a flag for further investigation. This could be a change in a customer’s self-reported data, an change detected from an internal source, or an anomaly in their transaction behaviour.
The race to perpetual KYC is a marathon, not a sprint. It will take the right technology and the right implementation within organizations. One thing is for sure: the race is on and you don’t want the competition to lap you.
Stay tuned as we will be back with more on this topic.