What are KYC and pKYC?


While ensuring strong KYC practices for companies has been a cornerstone of industry for many years now, the arrival of pKYC is changing the game. What is the difference between the two?

In a recent post by Sentinels, the company detailed the differences and what sets each apart.

KYC, Sentinels remarks, is a set of standards designed to protect banks other financial institutions from fraud, corruption, money laundering, terrorist financing and other economic crimes.

The process involves a series of steps that help institutions establish customer identity, understand customers’ activities, assess money laundering risks associated with customers and determine whether the source of funds is lawful.

Sentinels said, “Effective KYC processes sit at the core of any successful compliance program, and the demands of these processes are continuously intensifying. With anti-money laundering (AML) and KYC compliance growing in importance amidst more stringent regulatory requirements such as the EU’s 6AMLD, banks and financial institutions are having to allocate more resources and time to ensuring compliance with KYC requirements.”

Perpetual KYC, meanwhile, is different to this process. Sentinels explained, “The problem with KYC is that it’s often viewed as a ‘one and done’ process. In other words, organizations will run the process once during the onboarding stage of a new customer to verify their identity, and then only re-run it periodically, perhaps once every few years.”

According to the firm, this is a terrible approach for companies operated in regulated sectors such as finance because a customer profile can dramatically change over a short period of time. By only running KYC checks periodically, firms are potentially missing out on key information that might develop later down the line.

Sentinels commented, “This is where perpetual KYC (pKYC) comes in. pKYC is like KYC but rather than checks only being carried out occasionally, they’re carried out continuously—or, rather, perpetually—to provide a real-time view of the state of your customers. The pKYC process is far more dynamic, and customer information is consistently cross-referenced with resources such as external databases and sanctions.”

Some of the benefits of pKYC include end-to-end automation of KYC steps, a reduced need for human management, improved accuracy and quality due to lower human error and a reduced need for human intervention.

Sentinels concluded, “Financial institutions have significant KYC and transaction monitoring obligations. However, the large volume of transactional activity managed by even the smallest of firms can mean that it’s near impossible to meet today’s baseline compliance standards using human-led processes alone. This is a truth that most firms are beginning to realize as the ongoing digital transformation continues to increase the adoption of financial services among consumers.

“At the same time, firms must also protect themselves from financial crime and the challenges posed by external threat actors. With the right KYC and transaction monitoring tool, firms can benefit from perpetual KYC and monitor their customers based on defined rules. If a rule is breached by a customer, the alarm will automatically be raised and enable compliance teams to step in and take control.”

Read the full post here.

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