Building an Automated KYC Model

Ken Triemstra

The term Perpetual KYC is certainly trending in the industry. Many technology providers claim to provide this, but the concept is viewed by sceptics as merely a marketing term. How can firms build a practical approach to ongoing ad-hoc event notifications? The goal is proactivity and working smarter, not harder.

I suggest that we expand our definition of the word automated in the context of Perpetual KYC to mean having automated connectivity to client data and directly embedding the client into workflows where information needs to be obtained in place of scheduled periodic reviews.

There isn’t one vendor that will be able to solve the end-to-end KYC challenge. There are many hand offs and touchpoints along the way. Personally, I’m a big proponent of focusing on the areas that have the biggest output; focusing on where analytical data shows the biggest return on investment.

Financial institutions can begin by focusing on their top areas of concern and building upon a KYC model that addresses these needs. As you figure out the problem areas you want to solve, though, you cannot lose sight of your firm’s risk appetite as you look to pivot from a scheduled periodic review process to a perpetual or continuous review based on triggers. Finding that sweet spot needs to be done before implementing a solution.

Top 3 Elements of a Perpetual KYC Operating Model

In an ideal world, I believe the key ingredients for perpetual KYC begin with an automated, proactive client outreach process that enables the bank to set expectations well in advance. If the bank focuses on relationships and have a clear view of expectations at a relationship level, clients will begin to expect this more and more as part of a seamless customer experience.

Next, for any technology solution to make an impact, the industry needs simplified, consistent KYC requirements globally to take the guesswork and overlap out of KYC. There will always be nuances, but many activities agnostic of AML client risk have become tied to the concept of a Scheduled Periodic Review. Banks ultimately need to embed these activities into their risk based approach and be flexible to meet the spirit of regulation.

And finally, we need to redefine what is meant by the term real-time events. Typically, financial institutions have approached KYC events with a 90-day timespan and consider that real-time, while the client is questioning why they are receiving a follow up three months later. Real-time events, through the support of automation, should be defined by the customer’s perspective, not just the bank’s.

Stay Focused on the Goals

There are a lot of different technology solutions. Ultimately, you have to identify your challenges, get internal buy-in, and agree on a multi-year roadmap that will allow you to build a digital solution to those challenges. Once that’s in place, you can start implementing a phased approach and start showing wins right out of the gate.

No one vendor can do the entire KYC process perfectly. It’s about building an ecosystem of solutions that coexists and are easily integrated, configurable, and agile. The tech stack conversation is very important. As many firms are transforming their internal core technology platforms, you don’t want to be configuring an AML system into your institution that ends up being multiple different languages trying to communicate.