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Achieving Ongoing Customer Due Diligence with Perpetual KYC

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What is Perpetual KYC? pKYC Meaning

Perpetual KYC, or pKYC, is a new approach to the traditional Know Your Customer (KYC) process used by financial institutions, banks, and other organizations to verify the identity of their customers. pKYC is a continuous customer due diligence (CDD)  process of monitoring and updating customer information, as opposed to the one-time verification typical of the traditional KYC process.

The demand for pKYC has surged due to a global increase in AML regulatory fines. As a result, financial institutions are actively seeking strategies to decrease customer risk while improving compliance measures and financial data security. They use advanced technology and data analytics to monitor and update customer information.

Perpetual KYC vs. Periodic KYC

KYC is conducted primarily through two methods: Perpetual KYC (pKYC) and Periodic KYC. 
Perpetual KYC is an ongoing process ideal for banks and financial institutions, focusing on constant monitoring and updating customer information in real-time to ensure accuracy and compliance, which is particularly useful for long-term client relations and risk management. It aligns with proactive Anti-Money Laundering (AML) strategies, like event-driven reviews, but with continuous diligence. 

On the other hand, Periodic KYC is where KYC checks are carried out at set intervals, typically annually or every two years. This method is particularly relevant for financial institutions with limited resources for continuous KYC monitoring. 

Although this approach is less demanding regarding resources, it may not be as effective in promptly identifying and managing risks. Changes in customers' circumstances and risk profiles can occur quickly, and a periodic review might not detect these changes in time. Although periodic KYC is an efficient method to manage large volumes of customers, it does not provide real-time risk assessments, which can expose financial institutions.

What are the Benefits of Perpetual KYC?

pKYC processes significantly benefit businesses in various industries, enhancing security, compliance, customer experience, and operational efficiency. The key advantages of implementing perpetual KYC in your business operations are:

  1. Enhanced security: Perpetual KYC allows financial institutions to continually verify customer identities, significantly reducing the risk of fraudulent activities such as identity theft, money laundering, and other illegal transactions.
  2. Compliance with changing banking regulations: With pKYC, financial institutions can ensure continuous KYC compliance with the latest legal requirements, adjusting to regulatory changes more efficiently and avoiding potential legal issues.
  3. Improved customer experience: Maintaining up-to-date customer information enables financial institutions to offer more personalized and efficient services, understand customer needs better, and enhance customer satisfaction and loyalty.
  4. Operational efficiencies: By automating the verification process, perpetual KYC allows financial institutions to save time and resources with real-time KYC monitoring that would otherwise be spent on manual checks and audits, improving overall operational efficiency and focusing more on core business activities.

Challenges of Implementing Perpetual KYC

Implementing pKYC is complex for financial institutions due to the ongoing verification and updating of customer data for compliance and risk mitigation. Key challenges include:

  • Managing the large volume of ever-changing customer data
  • Adhering to evolving regulatory requirements
  • Ensuring effective communication and collaboration across various departments.

Despite these hurdles, perpetual KYC is vital for regulatory compliance in finance and risk protection and is achievable by implementing a specialized perpetual KYC solution, efficient processes, and organizational collaboration.

Best Practices for Implementing Perpetual KYC

To make pKYC a seamless part of your compliance framework, ensure that your approach is thorough and adaptable to the ever-evolving financial landscape:

  1. Document procedures for continuous customer verification: Establish clear, written protocols for ongoing monitoring of customer information. This involves regularly reviewing and updating customer profiles to capture any changes in their risk status. Documenting these procedures ensures consistency and helps in auditing processes.
  2. Invest in advanced data handling and automation technology: Utilize advanced KYC automation tools incorporating data analytics. These tools, such as data collection, verification, and ongoing monitoring, can automate the KYC process. Automated systems can efficiently scan for changes in customer profiles and identify unusual patterns, raising alerts for potential risks.
  3. Take a risk-based approach: Implement a stratified system where customers are categorized based on risk levels. High-risk customers require more intensive monitoring and customer due diligence. KYC technology can assist in this stratification by analyzing customer data and assigning risk levels based on predefined criteria.
  4. Regular training and education: Ensure your compliance teams are well-trained and regularly updated about the latest regulatory changes and technological advancements in KYC solutions. This training should include operating new KYC software, interpreting its outputs, and integrating its findings into the company's broader compliance strategy.
  5. Continually review and update: Regularly review and update your KYC processes and technology to keep up with evolving regulations and industry trends. This involves updating the procedures and ensuring the KYC software is current with the latest features and compliance requirements.
  6. Integrate customer feedback mechanisms: Incorporate channels for customer feedback in the KYC process. Customer insights can help streamline the process, making it more user-friendly and less intrusive, enhancing customer satisfaction and compliance.
  7. Data security and privacy compliance: Ensure your KYC technology solution meets the highest data security and privacy standards. Compliance with global data protection regulations like GDPR is crucial to protect customer information and maintain trust.
  8. Cross-department collaboration: Create a collaborative environment where departments like IT, compliance, and front-end operations work together seamlessly. Integrating KYC technology requires coordinated efforts across different facets of the organization for effective implementation.

By following these best practices and effectively utilizing KYC technology solutions, financial institutions can enhance their perpetual KYC process, ensuring robust compliance and efficient operation in the face of evolving financial crime risks.

How KYC Solutions Can Help

As online transactions and remote client interactions increase, Fenergo's specialized perpetual KYC solution becomes a crucial tool for financial institutions. This innovative solution automates continuous monitoring of client profiles for KYC compliance. It efficiently detects changes in entity data, transactions, and AML screening and adeptly assesses the risk impact of these changes. This allows for automated processing in low-risk cases and prioritizes high-risk cases for enhanced due diligence.

Fenergo's approach significantly streamlines the periodic KYC review process, which has traditionally been both costly and labor-intensive. A Fenergo study reveals that more than half of financial institutions spend between 61 and 150 days on client KYC reviews, costing an average of $2,200 per review. Fenergo Smart Review aims to drastically reduce this time and expense, ensuring adherence to global and national KYC regulations.

Fenergo's technology transforms client onboarding into a digital, automated, and efficient process. This reduces manual interventions and expedites client integration while maintaining a strong focus on compliance with AML and KYC regulations. The solution's automation enhances the precision of due diligence tasks, and its continuous monitoring capability is key in identifying and flagging suspicious activities in real-time. 

Engaging with Fenergo not only ensures an efficient onboarding experience and reliable compliance with regulatory standards but also helps forge stronger, more trust-based client relationships. Request a demo.