In a recent post by Encompass Corporation, the company asked whether pKYC (perpetual KYC) will replace traditional KYC refresh processes?
The traditional method of Know Your Customer (KYC) in commercial banking has always demanded thorough due diligence, not just at the initial onboarding stage but continuously throughout the customer lifecycle.
Banks, adopting a risk-based strategy, would routinely reassess clients, checking whether their activities align with prior expectations and if any significant changes might influence their risk assessment.
However, these review cycles, whether for high, medium, or low-risk clients, can be extremely resource-intensive, particularly when conducted manually. Banks often find themselves in a repetitive cycle, collecting and verifying an extensive range of documents to decipher the beneficial owners and corporate structures already analysed during onboarding. Frustratingly, these efforts are often for naught, as no substantial change is generally detected.
The traditional manual KYC processes pose several challenges. For one, KYC records may rapidly become obsolete with corporate clients’ ever-changing ownership, structures, and key roles, leaving banks vulnerable to unidentified risks between refresh cycles. These procedures, requiring significant human resources, time, and money, lead to overwhelming client record volumes that banks struggle to maintain, resulting in unmanageable backlogs and unidentified risk exposure. Moreover, the constant requests for documentation strain client relationships, often leading to client dissatisfaction.
Enter the era of perpetual KYC (pKYC), a groundbreaking shift in commercial banking. pKYC takes advantage of sophisticated technology, including data analytics and automation, to constantly monitor client profiles. This innovative approach allows for a radical overhaul of the customary refresh model. The advantages are numerous: real-time client insights, immediate alerts triggered by changes in client profiles, enhanced risk reduction capabilities, and significant efficiency and cost savings due to automation. Furthermore, clients undergo a less intrusive experience with fewer documentation requests and increased compliance transparency, courtesy of a more streamlined approach.
However, the transition to pKYC is not without its challenges. For widespread adoption, several hurdles must be overcome. Banks must be willing to invest in aligning legacy systems with new technologies, necessitating a comprehensive data strategy and updated customer data profiles. Solutions like automation and technology, provided by platforms such as Encompass, are integral for a seamless transition, offering updated data attributes essential for effective risk assessment. Importantly, banks must recognise the intrinsic value of pKYC, not just for its efficiency but for the enhanced security and customer experience it offers, making KYC transformation an essential component of the bank’s broader change strategy.
Read the full post here.
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