In today’s rapidly evolving regulatory environment, the necessity for continuous and vigilant KYC processes is more critical than ever.
According to Moody’s, with the expansion of anti-financial crime legislation and increasing sanctions, not only traditional financial institutions but also global corporations, asset managers, insurance firms, crypto wallets, technology providers, and challenger banks find themselves under significant pressure to maintain stringent anti-money laundering (AML), counter-terrorist financing (CFT), politically exposed persons (PEPs), and sanctions screening protocols.
Traditionally, risk assessment and due diligence at the time of client onboarding followed by periodic reviews were the norm. However, such methods are becoming increasingly insufficient due to the continuous nature of risk exposure and regulatory demands. It is becoming more evident that a shift towards perpetual KYC (pKYC) offers a more dynamic solution.
pKYC isn’t just a buzzword but a robust, data-driven strategy for risk monitoring, conducted on an ongoing basis with the support of near real-time data updates. This approach involves an automated, integrated workflow of continuous data checks that promptly identify risk-related changes, such as updates to sanctions lists, election outcomes, or emerging negative news stories which may significantly alter a client’s risk profile overnight.
The implementation of pKYC enables organizations to maintain accurate records of customers and other third parties continuously, thus obviating the need for periodic reviews. This is possible thanks to the integration of real-time data, automation, and AI-enabled tools that aid in quickly escalating issues so that risk-based decisions can be made more effectively.
Moreover, the perpetual approach to KYC facilitates a more agile response mechanism, allowing businesses to react swiftly to emerging threats or changes in risk associated with their counterparties. This capability is particularly crucial as businesses must navigate daily risks from fraudsters, sanctioned entities, and other malevolent actors within their networks.
The operational demand of managing extensive data can be challenging, but the adoption of pKYC, underpinned by smart screening technologies, allows businesses to identify and act on changes in beneficial ownership or any significant risk profile alterations effectively. Financial institutions, grappling with the need to balance KYC compliance, operational efficiency, and customer satisfaction, are finding that digital transformation towards more agile KYC practices like pKYC can mitigate risks more adaptively.
For asset managers and those in the professional services and insurance sectors, this digital transformation extends to customer onboarding, ongoing risk management, and maintaining compliance with sanctions and regulatory benchmarks. End-to-end pKYC processes built around a risk-based compliance approach not only bridge crucial data gaps but also enhance the ability to spot and report suspicious activities swiftly. This responsiveness to regulatory changes and the capacity to manage compliance efficiently can make the adoption of pKYC both a strategic and practical choice for modern businesses.
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