Know Your Customer practices in the financial sector have been long-held, with the need to ensure customer compliance a vital pillar of customer processes. In the fast-paced digital age, what with be the role for digital and perpetual KYC?
When angling for definitions, RegTech firm ComplyAdvantage explains that traditional KYC happens at set intervals in the customer relationship, whereas perpetual KYC is an ongoing approach to due diligence that occurs in real-time.
In a recent presentation by Napier COO Greg Watson, the firm’s exec discussed in great detail the role of both forms of KYC, and why many firms are turning to pKYC as an alternative to the traditional form.
Watson highlighted that with the current traditional KYC processes, there is often significant efforts involved in the process.
He said, “I think the thing that’s incredibly challenging in this day and age is the operational overhead associated with conducting this periodic refresh cycle. Some organisations that have north of 5000 people have KYC or compliance operations involved in this process that are highly laborious have low levels of automation are difficult to train, retain and attract the right talent and use lots of usage of offshoring and nearshoring.”
The issue of laborious processes is one of the big drawbacks of the current KYC practices. With the automatic nature of pKYC, it ensures that customer data is not only accurate but also makes sure it adheres to the current regulatory norms in a seamless way.
Another key issue area for traditional KYC is business impact. Watson explained, “Depending on whether there’s remediation work at play, or there’s just a big uptick in policy – which has driven an increase in the workload associated with refreshes – I think often it’s the case that new business suffers.
“I’ve personally experienced how you need to realign the resourcing to meet the regulatory requirement which can impact your business, which is, which is obviously not ideal.”
Another key challenge for KYC, Watson stated, is around regulatory approval and a firm’s ability to be compliant. He said, “I think there’s a challenge just because of the sheer volume of requirements around compliance – the wood for the trees scenario – where you ask; are you really getting to the nub of the of the risk andare you really managing the risk appropriately?
“So, I think if you’re a regulator looking in, and bearing in mind that there’s many jurisdictions in the world that actually stipulate that you need to do a periodic refresh, you absolutely need to monitor your KYC risk.” Watson added that the regulators would look at this, and given the material findings and volume of work processed, would ask whether the firm was discharging the responsibility in the most effective and efficent manner possible.
But, you know, they would look at and say, really, given the material findings, and the volume of work processed, are you discharging this responsibility and the most effective and efficient manner possible.
With this in mind, the growing popularity of perpetual KYC is coming from a clear root cause – the rising need to maintain compliance with bigger customer sets whilst also ensuring this is being done on a regular basis without being burdensome to clients – is one of the key rising pressure points that is bringing pKYC to the fore.
This all poses one key question to industry thought leaders – is the overtaking of KYC by pKYC inevitable in the long term?
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