While the use of KYC techniques has been commonplace in financial services for many years, the concept of perpetual KYC is changing the industry. How can companies plan their journeys to pKYC?
In a recent whitepaper by RegTech firm Encompass, the company outlined how businesses can best plan their journey on the route to pKYC and what it involves.
Encompass explained, “Perpetual KYC represents a shift in the way institutions monitor customer information. It replaces manual, time-consuming, and expensive periodic reviews with a technology-centered, data-enabled alternative.
“pKYC is a continuous process of safeguarding an organization against financial crime by monitoring customer information and responding to changes. Consequently, firms maintain up-to-date customer profiles and achieve a state of ongoing compliance. The ultimate aim of pKYC is to know the customer better by truly understanding the nature of the change in circumstance being flagged by a range of data points and, with that context, making an informed decision in real time.”
The company detailed that back in 2021, it established a pKYC advisory board comprising KYC program owners from a range of financial institutions with the aim of working towards developing practical guidelines for institutions to map their individual journeys to pKYC.
In the opinion of Encompass, a transition to pKYC is more than just a risk mitigation exercise. It can also lead to better customer outcomes by reducing the gap between current tech capability, towards addressing regulatory remediation requirements, prioritising relevant customer profiles for review, and substituting arbitrary periodic customer checks with enhanced data-driven decisioning.
A key part of the journey to pKYC is establishing a detailed framework. As Encompass explains in the whitepaper, there are five key aspects of this framework which are important. These are data, policy, people, process, and technology.
In terms of data, high-quality internal and external data is required with third-party data ingestion, data quality and controls and a digital KYC profile also necessary. For policy, it is key that companies have policies in place that support pKYC, while the need cultural buy-in and clear project ownership and leadership amongst the people aspect is also vital.
For the process, there needs to be trust and commitment and a regular review of risk processes amongst other things, while for technology a strong client lifecycle management system as well as a digital ecosystem of internal and external systems involving multiple vendors are important.
Encompass developed a pkYC maturity model to underline the key aspects of the maturity of pKYC. The aim, the firm claims, is to highlight critical components at each level so firms can break down and prioritize the categories and sub-components to progress along the curve, irrespective of their starting point.
The components on this curve include the first step – manual KYC – which includes reliance of spreadsheets and paper trails – on to the next step, which is early automation. This part involves standalone, unconnected solutions using UI. From here it goes to mature automation and then onto pKYC.
On companies establishing their pKYC vision, Encompass concluded, “Even the terminology associated with pKYC can be daunting, causing it to be misunderstood as an unrealistic and revolutionary step for institutions. However, adopting a structured approach to process change, which focuses on individual tasks and outcomes that make KYC work better for the organization, will make the journey easier to plan, execute and sell – both internally and externally.
“It is important to recognize pKYC approaches continue to evolve based on technology solutions available, and there is no one size fits all solution. Whichever technology firms choose to deploy, they will need to have API integrations in and out of internal systems to be able to manage data seamlessly, as well as process expected alerts from both internal and external data sources to enable pKYC.
“Institutions will approach this transformation from varying starting points and, wherever that may be, this research should support stakeholders in evaluating their current maturity, identifying gaps and planning a path forward that realizes the many benefits of pKYC.”
Find the full whitepaper here.