Is the overtake of KYC by pKYC inevitable?


KYC practices have been long used in the financial sector. However, with fraud and financial crime more prevalent than ever, is perpetual KYC the evident next step?

KYC is still an important technology in its own right, but studies have found some of its shortfalls. According to the 2021 Fintech Onboarding Friction Index, the average fintech onboarding process takes six minutes, 29 clicks and 16 fields to complete – quick to some, but also burdensome to others.

Is the overtake of KYC by pKYC inevitable? Howard Wimpory, KYC transformation director at Encompass Corporation, believes it will be mixed. He said, “Not in all cases. For at least the medium-term, periodic KYC and pKYC will co-exist, with the necessity and call for each dependent on client risk assessment, jurisdictional data coverage and maturity (trust) of the pKYC model.

“For example, when dealing with high-risk client types, a full KYC refresh cycle overseen by analysts will continue to be required, whereas, when considering low and medium risk, which is 80% of the client book, these will be the cases that suit the pKYC model.”

In the opinion of Wimpory, going forward, the greatest volume of activity will go through the pKYC cycle with automated decisions made where no material changes are detected, while those with the greatest risk attached will remain within the periodic KYC sphere.

He went on, “When looking specifically at the supporting technology, there could be significant overlap between the automated data gathering opportunities that exist. It’s quite possible that there could be a shared infrastructure, but the high-risk portion will not rely on automated decisioning for highlighted changes, and these are likely to continue being reviewed by humans.

“At the complex corporate end of the KYC spectrum, it is worth noting that nobody is really operating to a full pKYC model currently and, while some banks are well on the way, with the processes and tools in place, its full promise has yet to be achieved. Within the current landscape, there is still a need for periodic reviews. While I expect this is likely to shift within the next 12 months or so, pKYC and KYC will continue to run in parallel until reliance, through vigorous testing, is achieved.”

Managing volatility

On the other hand, KYC Portal CEO Kristoff Zammit Ciantar believes that its replacement of KYC is inevitable. He said, “Perpetual KYC has become a crucial part of reducing risk exposure. The market of fraud and money laundering is so volatile leading to constant change. These changes are happening at a pace that companies cannot keep up with unless they adopt technologies with pKYC in mind.

“Whereas in the past, such systems were put in place to address regulatory requirements, we are seeing a major shift in companies whereby they are adopting such technology to reduce risk exposure. Risk relating to their business and brand reputation. This, I believe, is one of the major aspects leading to pKYC.

“Perpetual or ongoing KYC leads to real time alerts on anything that exposes the company to risk. It eliminates the exposure that companies face in between periodical reviews allowing them to act on risk exposure the minute it happens. It has also been proven that pKYC reduces the cost as it makes the process of periodical reviews more streamlined.”

One of the key reasons pKYC is becoming more prevalent within the financial industry is due to a mixture of scarcity of highly trained AML professionals and the need for more efficient and effective compliance processes, according to Fenergo head of financial crime policy Rory Doyle.

He added, “This approach promises to improve risk management, regulatory compliance, and overall operational efficiency in an environment of evolving financial crime threats and increasing regulatory scrutiny.”

Maintaining, not repairing

In the view of Michael Thirer, legal governance and regulatory affairs director at Muinmos, a key tenet of the pKYC replacement of KYC is a focus on keeping technology up to date, instead of constant remediation.

He said, “Any car owner will tell you that maintaining it is better than repairing. It costs less, prevents breakdowns, and allows you to plan ahead instead of having to “drop everything”, rush to the mechanic, spend unexpected amounts etc.

“Any compliance officer will tell you, that keeping their KYC data up-to-date is better than periodically remediating it. It costs less, prevents fines, and doesn’t force you to “drop everything” and concentrate solely on huge remediation projects.

“So yes, “Perpetual KYC” will replace “KYC”. The same way we don’t want our car to break-down (or, heavens forbid, a plane to crash) because of poor maintenance, we don’t want our KYC processes breaking-down, causing us to, possibly, violate AML/CFT regulations, be fined etc. KYC data is an important part of the “mechanism” of a financial institution, and “Perpetual KYC” is how we make sure that part is properly and regularly maintained.

“In fact, “Perpetual KYC” is the very essence of compliance: making sure – and knowing – you are always compliant, not at various points in time. It is the very essence of compliance, as compliance is about creating a process that assures you abide by the necessary regulations.”

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