Know your customer (KYC) is a well-known process in financial institutions. It is used to verify the identity of their customers and assess their risk level during the onboarding process. However, with more RegTech (Regulatory Technology) business emerging in recent years, perpetual KYC (pKYC) has started to replace the standard KYC process. pKYC as the name suggests, refers to an ongoing process of monitoring and updating client information. This is an improvement from the traditional KYC process which typically involves a one-time identity verification check at the time of customer onboarding, which is updated every 2, 8 or 10 years. This new form of KYC leverages cutting-edge technologies like AI, machine learning, and blockchain to seamlessly gather and verify customer data in real-time. With this feature, financial institutions detect risks earlier and roll out respective measures to prevent illegal activities from being actualized.
pKYC is an important arm in financial institutions for many reasons. One of which being that failure to comply with these regulations can result in hefty fines, legal action, and damage to a business’s reputation. In 2022, financial institutions were fined over $8 billion for AML-related violations.
Furthermore, acquiring real time updates on customer information offers a distinct advantage of maintaining precise and current customer data. This empowers businesses to enhance their products and services through personalized offerings. The automated verification process saves valuable time of knowledge workers and allows them to focus on more high-value work and core operations. Additionally, automation mitigates human error, and cuts down operational expenses.
Regulations and customer expectations are ever evolving. The ability to respond rapidly to emerging risks and novel requirements enables financial institutions to remain competitive in the rapidly transforming business landscape. Enforcement fatigue is now a problem of the past when organizations can maintain compliance standards instantaneously.
To transition from the traditional KYC process to pKYC, the organization must be able to identify a solution that works best for them. Currently, the pKYC process is mostly executed with the help of external software instead of a home-grown solution produced by the organization itself. As such, there is a need to make an informed decision on which RegTech company to engage with. This is a whole due diligence process on its own and requires advisors with in-depth knowledge and experience with KYC. It is of paramount importance that the engaged solution also complies with regulatory requirements in finance.
The process does not stop at choosing a platform. A crucial next step is to have a structured program to onboard and educate employees on the new system. A change in workflows, especially with the introduction of automation, has the potential to surface a new set of factors that have to be addressed. This could range from potential oversight by the system that requires manual intervention to the restructuring of practices that best fit the new workflow.
Transitioning from KYC to pKYC is not an overnight process. It requires time and dedication of team members in the organization to establish a workable system incorporating the new pKYC software. A smooth adjustment between the two with complete end-to-end transparency will allow for the rewards of pKYC to be reaped earlier.
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