Perpetual compliance (pKYC) is a new Know Your Customer (KYC) measure approach. It emphasizes the need for proactiveness in KYC instead of being reactive, as well as the continuous monitoring of customers. It also involves periodic KYC reviews for those triggered by abnormal customer behaviour patterns.
Perpetual KYC has been regarded as the next big thing for compliance; is it really the next big thing? What really is perpetual KYC? This article seeks to examine what perpetual KYC is in detail.
What Does Perpetual KYC Mean?
Perpetual KYC is also known as continuous, dynamic, and event-driven KYC. Perpetual KYC is abbreviated as pKYC. pKYC is a brand new approach to due fill that emphasizes the rapidly advancing financial markets in financial institutions and business entities that now exist.
So, instead of working reactively, the new approach is based on continuous monitoring for events that may alert an institution about the need to review and update customer information. Perpetual KYC (Know Your Customer) refers to a continuous or ongoing process of verifying and monitoring the identity and activities of a customer.
Unlike traditional KYC, which is performed initially only once during customer onboarding, perpetual KYC involves regular updates to customer information and monitoring of their behaviour, transactions, and risk profile. It is critical to adopt pKYC in industries with high regulatory requirements, such as finance and banking, where detecting and preventing money laundering, fraud, and other financial crimes is important. Businesses can continuously monitor customer activity to identify suspicious behaviour and take appropriate action to mitigate risk.
Perpetual KYC usually involves the use of technology and automation to streamline the process of collecting, verifying, and updating customer information. This can include the use of data analytics, artificial intelligence, and machine learning to identify patterns and anomalies in customer behaviour, as well as the integration of data from multiple sources to create a complete picture of each customer's risk profile.
What Processes Does Perpetual KYC Entail
Perpetual KYC is an important regulatory requirement for many industries, particularly those in the financial sector, to prevent money laundering, fraud, and other financial crimes. The processes involved in perpetual KYC typically include the following:
1. Customer Identification:
This involves collecting and verifying the customer's identity at the beginning of the relationship using various identity documents such as passports, photocard driving licenses, or national identity cards.
2. Customer Due Diligence:
This is the process of assessing the customer's risk profile and verifying the source of their funds or wealth. It involves reviewing the customer's background, financial history, and activities to identify any future risks.
3. Continuous Monitoring:
This involves continuously monitoring the customer's activities and transactions for suspicious or unusual behaviour. It helps to detect any changes in the customer's risk profile or activity that may warrant further investigation. This further illustrates the proactive approach of pKYC, as though the p in the abbreviation stands for proactive
4. Risk Assessment:
This involves periodically reassessing the customer's risk profile based on changes in their behaviour or circumstances, such as a change in their employment status, a significant increase in their transactions, or a change in their location.
5. Enhanced Due Diligence:
This is a more intense or rigorous form of due diligence that may be required for customers who are considered high-risk, such as politically exposed persons (PEPs) or customers from high-risk jurisdictions. This is referred to as enhanced due diligence. It involves gathering additional information and conducting more frequent monitoring to mitigate the higher risk.
6. Record Keeping:
This involves maintaining comprehensive and up-to-date customer information and interactions records, including identification documents, account opening forms, transaction history, and any correspondence with the customer. These records are important for audit and regulatory purposes.
7. Customer Screening:
This is the process of screening customers against various watchlists, such as sanctions lists or politically exposed persons (PEP) lists. It helps to identify any customers who may pose a higher risk of financial crime.
8. Training and Awareness:
Perpetual KYC requires a well-trained and knowledgeable workforce that can effectively understand and apply the company's policies and procedures. This involves providing staff with regular training and awareness programs to ensure they stay up-to-date with regulatory requirements and emerging risks.
9. Reporting:
Perpetual KYC requires companies to report suspicious transactions or activity to the relevant authorities. This involves implementing robust reporting procedures and maintaining effective communication channels with law enforcement and regulatory bodies.
10. Technology and Automation:
Perpetual KYC can be a labour-intensive process, especially for larger organizations. As a result, many companies are leveraging technology and automation to streamline the process and improve efficiency. This includes the use of artificial intelligence and machine learning algorithms to analyze customer data and identify potential risks.
pKYC is a diverse process encompassing numerous stakeholders and procedures, such as compliance teams, risk managers, IT departments, and personnel interacting with customers. Companies can better safeguard themselves and their customers against financial crime and reputational harm by developing efficient perpetual KYC processes.
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Why Is Perpetual KYC The Future Of Compliance?
The pKYC approach to KYC is gaining momentum. It is becoming quite popular in the compliance industry due to its ability to provide continuous monitoring and risk management and meet evolving regulatory requirements. Experts have solid reasons why pKYC should replace a single initial KYC with traditional KYC. There are several reasons why perpetual KYC is considered the future of compliance, which includes:
1. Enhanced risk management:
Perpetual KYC provides ongoing monitoring of customer behaviour and transactions, which enables financial institutions to identify and mitigate potential risks in real-time. This approach allows organizations to identify high-risk customers early and take appropriate measures to mitigate risks.
2. Compliance with evolving regulations:
Regulatory requirements are constantly changing, and organizations need to keep up with the latest compliance requirements to avoid fines and penalties. Perpetual KYC ensures continuous compliance with evolving regulations, which saves time and resources in the long run.
3. Improved customer experience:
Perpetual KYC eliminates the need for customers to provide their identification and other documentation repeatedly. This improves the overall customer experience, as customers only need to provide their information once, and updates are made automatically.
4. Cost-effective:
Perpetual KYC is more cost-effective than traditional KYC processes, which are often manual and require significant resources. Perpetual KYC automates the process, reducing the need for manual intervention and increasing efficiency.
Bottom Line
Perpetual KYC is the future of compliance because it provides ongoing monitoring and risk management, ensures compliance with evolving regulations, improves the customer experience, and is cost-effective. By implementing perpetual KYC, organizations can streamline compliance processes and stay ahead of regulatory requirements.
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