Why Periodic KYC is Failing: The Urgent Shift to Perpetual Compliance You Can’t Afford to Ignore

At the recent Datos Financial Crime and Cybersecurity Forum, held annually in Charlotte, NC, I had the honor of participating as a guest speaker for an executive roundtable session titled 'Periodic to Perpetual: Synergizing KYC and TM for Continuous Compliance.' 

The session sparked a lively and thought-provoking discussion, with several key questions on Know Your Customer (KYC) and transaction monitoring (TM) concerns raised by the audience, underscoring the growing need for financial institutions to rethink their compliance strategies. 

This blog post addresses the most pressing issues raised during that session, with a focus on why transitioning from periodic KYC to perpetual compliance is not just a regulatory requirement but a competitive necessity.

Why Periodic KYC is Falling Short

Many financial institutions continue to rely on outdated periodic KYC reviews—annual, biannual, or based on risk profiles. While these reviews satisfy basic regulatory requirements, the gaps between these reviews are where the problem lies. During those intervals, customer information may become outdated, risk profiles may shift, and the institution remains exposed to undetected risks. This vulnerability was a major point of concern at the roundtable, as the audience expressed frustrations over how quickly compliance risks can accumulate in these gaps, leaving financial institutions exposed to both financial crime and regulatory scrutiny.

It became clear from the discussion that the industry needs to move toward a perpetual KYC (PKYC) model—one that continuously monitors and updates customer profiles in real time, addressing risks as they arise. The move to perpetual compliance goes beyond a regulatory checkbox; it offers institutions a proactive way to manage evolving risks, regulations, and customer behaviors.

Traditional vs. Perpetual KYC—What’s Driving the Shift?

Financial institutions are discovering that periodic reviews simply cannot keep pace with the speed of today’s financial environment. With new regulations, technological advancements, and sophisticated financial crime schemes, KYC processes that rely on infrequent updates are proving inadequate.

Perpetual KYC leverages real-time data from diverse sources—including transactional activity, public records, and even negative news updates—to ensure customer profiles are constantly refreshed. This level of continuous monitoring allows financial institutions to detect risks as they arise, instead of retroactively addressing issues during scheduled reviews. As discussed, this dynamic, always-on approach not only meets compliance standards but also strengthens an institution’s ability to prevent fraud and financial crime.

The Integration of KYC and TM: A Must for Continuous Compliance

Another significant takeaway from the session was the consensus around the need to integrate KYC processes with TM to create a holistic compliance framework. Traditionally, these functions have operated in silos—KYC being a one-time or periodic activity, and TM serving as the ongoing surveillance mechanism. Attendees questioned how these two processes could be better aligned for greater efficiency and effectiveness.

The answer lies in their convergence: KYC provides the foundational understanding of a customer, while TM constantly updates this understanding with real-time insights into transaction behaviors. When KYC and TM are synchronized, an institution can transition from a reactive to a proactive stance, detecting and mitigating risks as they emerge. For example, if TM detects unusual activity, it can trigger an immediate update to the customer’s risk profile in the KYC system, ensuring that the institution is always aware of any shifts in risk.

Challenges of Transitioning to Perpetual KYC

While the benefits of perpetual KYC were widely acknowledged, some attendees raised concerns about the challenges involved in making the shift. The most common questions revolved around data management and legacy systems. Transitioning to a continuous compliance model generates a massive influx of data, and many financial institutions are still relying on outdated infrastructure incapable of processing and analyzing this real-time information.

Another critical challenge is ensuring the accuracy and reliability of the data being used. Outdated or incomplete data can lead to false positives or, worse, missed risks. Overcoming these challenges requires robust data management solutions and scalable, flexible systems capable of integrating diverse data sources and providing real-time updates. Financial institutions need to adopt cutting-edge technologies to meet these demands, including AI and cloud-based platforms designed for PKYC.

Customer Experience: Turning Compliance into an Opportunity

One of the most surprising yet welcomed insights from the session was how PKYC can elevate customer experience. Typically, compliance is seen as a burden for both the institution and the client. Periodic KYC often requires customers to repeatedly submit documents and undergo verification processes—frustrating, time-consuming tasks that detract from their overall experience.

With PKYC, this friction is reduced, if not eliminated altogether. Continuous monitoring means that customer profiles are updated in the background using real-time data, eliminating the need for clients to engage in periodic reviews. As financial institutions proactively manage customer information, they can also offer more personalized services based on up-to-date profiles, turning compliance into a competitive advantage. This shift from reactive to proactive service models was identified as a major benefit, with attendees acknowledging the potential for increased customer loyalty and satisfaction.

Technology as the Enabler of Perpetual KYC

The reality is that perpetual KYC is impossible without the right technological infrastructure. Institutions need to adopt sophisticated systems capable of continuous monitoring, automated updates, and seamless data integration. This is where platforms like Fenergo come into play.

Fenergo’s solutions offer financial institutions the ability to automate KYC and TM processes, breaking down the traditional silos and ensuring real-time updates. Leveraging advanced analytics and data management capabilities, Fenergo helps institutions transition to perpetual KYC efficiently, reducing the cost of compliance while enhancing accuracy and risk management. As discussed at the forum, financial institutions that fail to embrace these technological advancements risk falling behind, both in terms of compliance and customer experience.

The shift from periodic to perpetual KYC is not a distant possibility but a present-day necessity. As regulations grow more stringent and financial crime becomes more complex, financial institutions must embrace continuous compliance to stay ahead. By integrating KYC with TM and leveraging advanced technology solutions like those offered by Fenergo, institutions can safeguard themselves against evolving risks, reduce the cost of compliance, and offer an enhanced, seamless customer experience.

The forum left no doubt: perpetual KYC is not just a trend; it’s the future of compliance. Institutions that act now will not only protect themselves from regulatory risks but also position themselves as leaders in customer-centric, proactive compliance.