What is Perpetual KYC? All About Perpetual Customer Due Diligence

Perpetual KYC (more popularly referred to as pKYC) is a child of necessity that was birthed in response to one of the growing concerns that stem from the use of traditional Know Your Customer (KYC) processes. The key components of KYC are customer verification and authentication, customer due diligence and ongoing transaction monitoring. 
 

The advent of pKYC was necessitated by the lacuna discovered in conventional KYC. pKYC is therefore an evolution of traditional KYC risk monitoring. Just like KYC, pKYC exists to prevent money laundering and other financial crimes. 
 

Understanding Perpetual KYC (pKYC)
 

As it becomes easier day by day to carry out financial transactions over the internet due to advancements in technology, fraudulent financial activities (such as money laundering and terrorist financing) have also been on the rise. This has made it quite necessary for businesses in the regulated industries (especially banks and other financial institutions) to preempt and prevent fraudulent customers who are constantly devising new means of speedily carrying out illegal financial activities without being caught. 
 

Aside from the risk of reputational damage to these financial institutions, they also have to abide by the requirement to keep up to date and be compliant with new laws and regulations which are constantly being churned out by their regulatory authorities. Failure to do so would result in fines and penalties which will undoubtedly result in a loss of business profit and revenue.
  

In conventional KYC, risk monitoring is usually conducted at certain fixed periodic cycles or timeframes. Sometimes, between one risk assessment review and another, a lot of damage has been done through fraudulent financial activities. It is for this problem that the evolution from conventional KYC to pKYC became highly expedient. The fast pace of change in the regulatory compliance landscape makes it hard for compliance teams to keep using periodic automated monitoring.

Read Also: Anti-Money Laundering (AML) Fines of 2021 - Key Takeaways & Insights to see instances where businesses in regulated industries have incurred financial losses in the form of fines due to noncompliance with regulatory requirements.

What is pKYC? 

pKYC refers to the ongoing process through which financial organisations constantly gather and update customer information in real-time with the aim of using it for risk management. With perpetual KYC, businesses can foresee potential customer risks before they can cause any damage and either opt to cut ties or contain the impact depending on the situation. 
 

What are the Pillars of pKYC?

One element that lies at the very heart of pKYC is fluctuating risk levels. The risk profile of a customer can take a radical shift at the twinkle of an eye, requiring the prompt attention of the Compliance team and some immediate preventive action. Between one scheduled periodic review of the customer risk profile and another, a customer that was considered a low risk at the point of onboarding could metamorphose into a high-risk customer due to some suspicious transactions or political exposure. Hence the need for perpetual KYC (pKYC). 

Some of the key components of perpetual KYC include:
 

1. Precise Customer Profile

To effectively conduct pKYC, financial institutions require huge amounts of data. By handling such volumes of data and using them to provide structure and context to the KYC process, financial institutions can build and maintain precise customer profiles for all their customers. With such robust and precise customer profiles in place, it becomes easier to zoom in on and monitor any customer in real-time or near real-time when there is a prompt or trigger of suspicious financial activity.
 

2. Initiation of Prompt Reviews And Investigations

Prompt risk assessment reviews and investigations are vital aspects of pKYC. Instead of the Compliance team spreading itself thin due to lots of work backlog during periodic risk assessments, pKYC enables the initiation of prompt risk investigations and reviews at any time whatsoever, not having to wait for the next cycle of review. This makes financial institutions fully armed and ready for compliance functions in a way that greatly limits risk and prevents fraudulent financial activities.
 

3. Updated Risk Assessment

With pKYC, as soon as there is an event or transaction that triggers a risk assessment or investigation, a review is conducted immediately. This makes it possible for financial institutions to have updated risk assessments for customers as often as necessary, instead of the periodic risk assessments under traditional KYC which often provide obsolete results that end up being remedial rather than preventive.

Recommended - What is Periodic KYC Refresh?
 

What are the Benefits or Advantages Of pKYC? 

Some of the advantages of pKYC include

a. It gives a holistic view of a customer's risk profile over time

Due to continuous monitoring over the lifespan of the business relationship, a wider and more complete picture of each customer's risk profile is available at all times and not only when periodic risk assessments are conducted. This provides compliance teams with sufficient information to take swift actions and make emergency decisions where some fraudulent financial activities seem to be brewing.
 

b. Prompt and timely assessments of customer risk

Under the conventional KYC regime, the risk profiles of customers are assessed and determined first at the point of onboarding. The next time such an assessment might be conducted could be after 2 or 3 years. But with pKYC, risk assessment reviews for a customer are conducted as often as necessary, without waiting for the next scheduled period of risk assessment.
 

c. Flexibility in operation

PKYC allows for a shift from manual periodic risk assessment reviews to an event-triggered review option.
 

d.  Automatic review of data from multiple sources

PKYC relies heavily on data from multiple sources such as government watchlists, sanctions and blacklists. With access to these data sources that are frequently updated, financial institutions can automatically review and analyse information about any customer at any given time. This automatic review makes it easier to assess and update risk profiles.
 

Final Thoughts

It has become clear that conventional KYC processes cannot keep up with the demands of fluctuating risk levels and the constantly evolving and speedy methods of financial crimes being deployed. It is therefore through pKYC and its preemptive features that regulatory compliance teams and business organisations can keep pace with the demands in the compliance landscape in our world of super-fast technological change and billions of online financial transactions. 
 

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