pKYC, or Perpetual KYC, is a relatively new approach to financial crime prevention that gives promises of better customer experiences, more efficient financial crime prevention and higher cost efficiency.
There is a clear need for change in approach as financial institutions (FIs) feel the ever increasing cost of compliance, law abiding customers feel the increase in controls and despite all the good efforts a recent report by Bloomberg has valued annual money laundering transactions worldwide at up to $2 trillion. So let’s examine the concept of perpetual KYC and how it can benefit your organization.
The traditional method of KYC is based on review cycles of one, three and five years and falls short in tackling financial crimes of the magnitude, complexity and speed of change we are facing. The cyclic reviews can result in obsolete risk assessments, making FIs non-compliant and vulnerable to potential threats, and they often result in large backlogs manual work further increasing the risks.
In contrast, pKYC regards KYC as a continuous, or perpetual, process where activities are triggered by actual events. At the heart of pKYC we have a digital KYC profile for each customer that is designed, and made available, in way that enables automation of:
- Ongoing monitoring and due diligence activities
- Event triggered reviews
- Real time updates to the digital KYC profile
Globally FI’s are shifting to a digital Perpetual KYC (pKYC) operating model, enabling them to leverage advanced technology to manage risks through constant customer monitoring and information updating.
A pKYC operating model - Its functions and scope
pKYC spans across the entire KYC life cycle and leverages new-generation technologies like artificial intelligence (AI), machine learning (ML), and cloud to update customer profiles for automating processes within:
- Identification and verification (ID&V)
- Customer due diligence
- Customer and sanction screening
- Risk scoring
- Transaction monitoring
- Storage of customer information during offboarding
Figure 1: A New Operating Model Powered by pKYC
By handling and providing structure and context to large volumes of data, pKYC enables FIs to maintain a precise and updated customer profile and risk assessment and to initiate reviews and investigations as soon as an event triggers the need, thereby reducing the risks of financial fraud and exposure.
The advantages of adopting a pKYC operating model
To stay relevant in the highly competitive financial industry, and protect themselves from potential threats, FIs must adopt an efficient pKYC operating model. The various advantages offered by this model are as follows:
- Increased cost efficiency - Although shifting to a pKYC model requires a significant investment during the early stages, it reduces operational costs in the long run through optimization of resources, decreased rework, and reduced dependency on manual labor.
- Improved quality and compliance - With a digital KYC profile, well-defined processes, and events/triggers, significant parts of the KYC life cycle can be fully automated, reducing human interference and errors.
- Elevated customer experience- An efficient pKYC model can enhance customer experience through facilities like faster onboarding, customized offerings and reduced risk of asking customer for duplicate and/or unnecessary information
- Reduced risk- Constant monitoring and performance of due diligence reduces operational risks e.g. from backlogs in customer review, financial risks like terrorist financing activities, money laundering and fraud and the risk of reputational loss
Recommendations for the successful implementation of pKYC
Even with advanced technology, implementing an efficient pKYC model for due diligence comes with its own set of challenges, the usuals barriers being:
- Inefficiencies in the onboarding process
- Absence of a standardized KYC model and regulations
- Lack of integrated systems
- An inadequate public repository of customer data
From supporting our clients globally, we have extracted the following three main recommendations for overcoming the above barriers and an achieving a successful implementation of pKYC:
- Ensure a clear target state: Establish a clear vision for your target state, that includes all element of your pKYC, onboarding to service and exit to data model and architecture, orchestrating the processes and data flow to create the most efficient operating model.
- Establish a well-defined road map: Break down the journey towards your target state in well-defined steps in a road map, making sure that you build your operating model starting from the foundation, that is your data model and architecture, and up
- Harvest quick wins supporting target state: As part of defining your target state it is inevitable that you discover multiple optimization potentials that could be realized now – go ahead and do so, as long as you align your optimization with your target state
Implementing a new pKYC operating model, realizing the full automation potential, requires a large scale program – or a series of projects - and to secure support from senior management, and financing, it is critical to break down the program in manageable steps. To secure continued support, and to harvest benefits as early as possible, it is equally critical to take agile approach where improvements, aligned with the target state, are delivered on a continuous basis rather than as a big bang at the end of a program. Having the right partner will provide the needed resources and capabilities to do so and enable you to leverage on a wealth of experience.
The HCLTech advantage
Leveraging our domain expertise to ensure compliance with AML regulations, we are empowering FIs to protect themselves from financial crimes in a cost-efficient manner and to create a remote, hassle-free onboarding experience for their customers. HCLTech is currently offering the following solutions:
- Our risk and compliance management solution facilitates automation through entity resolution, data visualization, and network generation techniques, reducing costs and amplifying the KYC-AML value chain
- We have partnered with RegTechs to provide seamless pKYC transformation solutions to our clients
- Our team of over 13,000 consultants covers prominent worldwide and local regulations in the UK, USA, Asia Pacific, and Europe
- Over 600 SMEs with checklists, benchmarked templates, execution documents, and training content strengthen our services
Our expertise across TM, CLM, CTF, AML, KYC and fraud detection provides world class solutions recognized by top tier financial services providers and rating agencies globally.
Sources
https://insights.encompasscorporation.com/pkyc-journey-new-operating-model
https://www.ingentaconnect.com/contentone/hsp/jfc/2022/00000005/00000004/art00003
https://www.hcltech.com/brochures/financial-services/kyc-and-aml-compliance-simplified
