Managing compliance challenges with perpetual KYC


Managing compliance challenges with perpetual KYC

How can regulated companies use perpetual KYC (pKYC) to solve their compliance challenges and manage risk throughout a customer’s lifecycle?

The concept of know your customer (KYC) has been around since the early 2000s, introduced to help banks prevent financial crimes like money laundering and fraud.

Since then, KYC practices have been embedded into almost every regulated business to identify risk early in the customer lifecycle. The KYC process helps build customer profiles, so risk can be monitored and managed throughout the duration of the relationship between institution and customer.

Of course, for centuries traders have been undertaking some form of KYC, whether instinctive, “I reckon Alex is alright for some credit as I know where they live”, reactive, or formalized through a due diligence program. It’s only recently, and in certain sectors, that the practice of KYC has become compulsory.

Thanks to data collection and analysis techniques, organizations are now able to understand which customers are low-, medium- and high-risk, factoring in anything from geographical location to work history, and media profile. This automated approach to KYC means risks associated with customers can be identified and monitored, with the most high-risk accounts off-boarded if necessary.

So far, KYC systems and processes can be set up and operated in whichever way a firm chooses, so long as it ensures compliance with the relevant regulations for the jurisdictions it operates in. 

Perpetual KYC

Monitoring the changing picture of risk across a customer base is challenging. But adequate and appropriate risk monitoring is a key component of any anti-money laundering compliance strategy.

Regulated businesses have a mandate to monitor risk and report suspicious activity to prevent money laundering and financial crime from going undetected. It is complex and time-consuming though, especially in a world of fast-changing threats, politics, regulation, and corporate roles.

Enabled by technology, however, a perpetual know your customer (pKYC) approach brings automation to continuous risk management across an entire customer base. It leaves only the most complex and nuanced investigations to humans, and arms them with risk data that helps them identify potential issues and make decisions about how to deal with them.

Perpetual KYC or pKYC uses automation to track and highlight circumstantial changes to a customer's risk profile on a constant basis.  If firms look at risk across a business entity at a point in time, for example, they may uncover risk too late or obtain a picture that changes the next day. With pKYC there is no longer a need to focus on reviewing customers at set times. If a risk arises, it is flagged, can be investigated, and any necessary action can be taken right away.

Organizations are using a combination of automation, artificial intelligence, and people-power to conduct pKYC and solve the challenges of handling a changing risk landscape. This always-on approach can be more efficient and cost-effective compared to large remediation tasks, and it is a sustainable way to meet compliance challenges each day without adding a huge amount of resource into a compliance team. 

How pKYC works

Using regulatory technology, companies can integrate automated KYC and AML checks, along with other screening activity. These checks trigger alerts, so that if there are material changes associated with an individual customer or corporate account, action can be taken to mitigate or investigate the risk, instead of waiting years to uncover and act on it.

Manual KYC processes can be slow and prone to error, with data scattered and held in different places, often not “clean” and sometimes out-of-date or irrelevant. Automation enables a constant throughput of clean, accurate, real-time data to feed into due diligence activity.

Perpetual KYC means firms can be proactive instead of reactive; constantly and consistently monitoring risk and maintaining compliance. 

Get in touch

Moody’s Analytics KYC is transforming risk and compliance. Enabling organizations to understand risks and make decisions with confidence about whom to work with.

If you are interested in introducing a process of perpetual KYC for customer and supplier risk monitoring, please get in touch, we would love to help.