Nick Ford, VP for Strategic Alliances at Encompass and Chris Laws, VP, Product, Strategy and GTM at Dun & Bradstreet
Traditionally, Know Your Customer (KYC) has provided a framework by which organisations can carry out due diligence on existing and potential customers, enabling ratification of issues such as beneficial ownership and identity verification. This process has evolved over time from a largely back-office manual function, managed by analysts and administrators, to an increasingly automated one, whereby software can be used to complete KYC within a short space of time, saving time and money.
Today, KYC is conducted at specified intervals – at onboarding, then traditionally at one, three and five years – for the duration of a customer relationship. The time between these periodic reviews is dependent on the level of perceived risk posed by that customer, which is determined during the onboarding process. This means that information is immediately out of date, and banks and regulated entities are exposed to significant risk until a review is conducted.
Digital transformation is rapidly changing the face of due diligence, with many organisations committing to ongoing and digitally enabled data reporting or client onboarding, often facilitated by RegTech. Perpetual KYC (pKYC), an emerging concept in financial crime compliance, is the next step in this evolution.
Also known as continuous KYC, event-driven KYC or dynamic KYC, pKYC is based on the dynamic refresh of customer data in response to key triggering events. It represents a more innovative approach to KYC processes than the traditional, reactive ways of updating information by providing financial institutions with an accurate and up-to-date view of their regulatory risk at all times.
A successful transition, though, depends on critical factors.
Firstly, the organisation in question must have reached an advanced level of data maturity and system integration across an ecosystem of technology, data and partners. Secondly, its compliance team must have a good understanding of what constitutes a meaningful change that would represent a trigger for KYC processes.
Even when these conditions have been met, with intelligent process automation playing a crucial role with the digital KYC profile it generates, it is plausible that pKYC could take several years to be fully implemented. It is for these reasons, and the embryonic nature of a concept that has not yet been fully explored by regulators and requires extensive cultural buy-in, that the extent and speed of widescale adoption remains unknown.
However, the positive impact to an institution would outweigh the perceived challenges, with pKYC driving down operational costs and ensuring the auditability of compliance processes in the long run. Not only that, but the digital operating model that enables it could reduce compliance costs by increasing straight-through processing, enabling more management by exception and minimising out-of-date records – impacting on spend and resources.
To build up the systems necessary for this evolution, financial institutions are starting to take the first steps by developing and deploying more automation of processes throughout their organisations. It is a foundational change and, while we are at the very start of the journey, the benefits realised by the pioneers of this new way of working will be long lasting.
Watch the video above to see Nick Ford, VP for Strategic Alliances at Encompass and Chris Laws, VP, Product, Strategy and GTM at Dun & Bradstreet, offer their insight into why due diligence is so essential for regulated entities and how institutions could realise some of the benefits of pKYC.
To find out more about the issues discussed, and how KYC automation could transform your processes, visit www.encompasscorporation.com