The traditional Know Your Customer (KYC) approach harbours certain limitations. Customers escalating to high risk can potentially fly under the radar, risking a bank’s reputation and burdening its resources and internal controls.
The industry is moving away from this static KYC methodology, evolving to a more dynamic customer refresh strategy. Perpetual Know Your Customer (pKYC) is gaining considerable momentum in the banking sector, revolutionising how banks engage with and monitor their customers.
Recently, Encompass hosted the inaugural US pKYC roundtable in partnership with Capgemini. The event facilitated an insightful, peer-led discussion, bringing together industry leaders from some of the largest banks. It was an opportunity to discuss the challenges and potential of pKYC, particularly under Chatham House rules. The roundtable was co-chaired by Dr Henry Balani, global head of industry & regulatory affairs at Encompass, and Manish Chopra, executive vice president, financial services at Capgemini.
The participants demonstrated a mature understanding of pKYC. The discussion bypassed basic definitions, focusing instead on the benefits and applications of pKYC. The conversation corroborated Encompass’s findings from its series of pKYC advisory board sessions over the past 18 months, where approaches to pKYC implementations continue to mature. The advisory board has developed a standardised framework comprising five key components – Data, Policy, People, Process, and Technology – believed to be enablers for pKYC adoption.
The roundtable revealed a clear understanding of pKYC as a dynamic, ongoing process of monitoring customers. This approach allows banks to react to significant changes in customer behaviour or risk profile as near to real-time as possible. The participants identified the importance of executive sponsorship, while also recognising other hurdles to be overcome. The key challenges revolved around data – understanding its requirements and the materiality of its attributes – and the role of regulators in facilitating a successful pKYC journey.
Participants agreed that transparency promotes trust between a bank, its clients, and regulators. However, they highlighted the importance of automating customer due diligence (CDD) processes to enhance consistency and increase case throughput. The roundtable recognised that one of the key challenges in implementing pKYC lies in consolidating data across internal systems and external sources, selecting the right pKYC technology, and meeting supervisory expectations. Internal customer data consistency and data lineages were also cited as challenges.
Acknowledging these challenges, the roundtable also underscored the advantages of pKYC in streamlining processes and reevaluating the relevance of data attributes. Participants highlighted the opportunity to monetise pKYC through the generation of a single digital customer profile in real-time, shared across the institution. This shared data could fuel insight-led decisions such as purchasing trends, potentially boosting revenue.
Regulatory concerns were also a focal point of the discussion. Regulators are increasingly expecting improvements in the KYC process to allow real-time responsiveness to customer behaviour and status changes. The roundtable acknowledged the complexity of proving pKYC’s effectiveness to regulators and expressed the need for more collaboration in this regard.
To conclude, the roundtable recognised pKYC as a complex, multi-year journey. Despite the initial investment in data, process, people, and technology, the roundtable concluded that once these foundations are in place, the investment pays off, with returns often materialising by year three.
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