What is Perpetual KYC? And How Does is Differ from Traditional KYC?

In this blog, we explore the concept of Perpetual KYC (pKYC), the advantages of pKYC, the role of technology in automating monitoring processes and enhancing due diligence, and the challenges firms may face when implementing pKYC. We also introduce Owlin for KYC, a powerful solution that automates, simplifies, and streamlines third parties’ onboarding, monitoring, and offboarding. 

What Is Perpetual KYC (pKYC), and How Does It Differ from Traditional KYC?

In his thought leader piece, pKYC: Turning compliance into an asset¹, Keith Berry explains that the KYC process involves verifying someone’s identity or confirming the legitimacy and trustworthiness of an entity before engaging with them. It forms the foundation of a firm’s risk assessment, ensuring they understand the potential risks when onboarding new customers, suppliers, or third parties. KYC also entails the ongoing monitoring of risks existing business partners pose throughout the relationship. Traditionally, KYC monitoring occurs at regular intervals, known as periodic monitoring.

Berry further explains that pKYC is a proactive process that constantly assesses counterparty risk. It operates continuously, utilizing event-based alerts to trigger enhanced due diligence (EDD) and investigations when needed. This real-time monitoring keeps track of changes in third-party behavior and circumstances. Unlike traditional KYC, pKYC offers a comprehensive view of risk across a business network throughout the entire duration of a business relationship. It goes beyond the initial onboarding phase and periodic intervals, providing a holistic perspective on risk management.

What Are the Advantages of pKYC for PSPs?

According to PricewaterhouseCoopers (PWC), pKYC brings several benefits to businesses in terms of cost reduction and operational efficiency²:

Reduction of Operating Costs 

One of the key benefits is the elimination of time-consuming manual tasks, leading to reduced operating costs. 

According to PWC, KYC expenses can now account for around 3% of a bank’s total operational costs. Moreover, PWC estimates that Medium-sized banks can achieve substantial cost savings of 60% to 80% by reducing human intervention. This translates to approximately USD 14.4 million in annual savings for corporate customers, while for retail customers, the savings amount to around USD 13.2 million.

Improved Accuracy and Quality of Data

Another advantage is the improved accuracy and quality of data. Automation minimizes human errors often associated with repetitive and mundane tasks performed in large volumes. Through machine learning, pKYC captures and stores relevant information accurately, ensuring compliance with regulatory requirements.

Enhanced Operational Efficiency through Reduced Human Involvement in pKYC

Furthermore, pKYC reduces the need for human involvement in cases where customer profiles undergo minimal changes. This alleviates the workload for analysts conducting reviews and enhances overall operational efficiency.

How Can Technology Help Businesses Automate Monitoring Processes and Enhance Due Diligence?

Technologies like artificial intelligence (AI) and machine learning (ML) can revolutionize the traditional KYC review process, allowing businesses to monitor customer data automatically. In the monitoring phase, instead of relying on manual checks by analysts during periodic reviews, these technologies continuously evaluate customer profiles. When a profile triggers an alert indicating the need for further scrutiny, the Customer Due Diligence (CDD) process is initiated. 

What Are the Challenges Firms May Face When Implementing pKYC?

According to Keith Berry¹, one of the main reasons firms hesitate to adopt pKYC is the uncertainty surrounding its implementation. They often still determine its definition, cost, functionality, and the most effective integration method without disrupting their operations. He explains that the cost of implementation can be a concern, especially when compliance is seen as a mandatory requirement rather than a value-driven initiative. Firms must invest in the IT infrastructure to support automation and ensure a smooth transition to pKYC.

Berry adds that embracing pKYC also requires a cultural change within the organization. Compliance professionals need to be trained to understand and adopt the pKYC approach. The mindset needs to shift from a defensive approach to an offensive one, where KYC is not just a one-time process but a continuous effort throughout the customer relationship. This cultural shift can be challenging but is crucial for successful pKYC implementation.

Discover How Owlin for KYC Helps Organizations Enhance Their pKYC Processes

Owlin for KYC helps financial organizations build their pKYC frameworks, presenting them with a comprehensive, unified solution encompassing onboarding, monitoring, and offboarding processes. This powerful tool delivers a range of benefits, including:

• Extensive screening against multiple databases at the onboarding stage to ensure thorough due diligence;
• enablement of continuous monitoring of all entities, offering valuable insights that aid in prioritizing entities and identifying important topics or risks that require immediate attention;
• streamlining the offboarding process while preserving vital case information, allowing for a seamless and efficient workflow. Furthermore, Owlin for KYC provides a complete audit trail, offering a transparent record of the end-to-end onboarding and monitoring activities for enhanced compliance and regulatory purposes.

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Contact our team to learn how Owlin for KYC can revolutionize your compliance practices and drive operational efficiency. Take the first step towards a future of optimized risk management and compliance excellence.

Sources

1. Compliance Weekly, 2023, pKYC: Turning compliance into an asset

2. PWC, ND, Perpetual KYC: A new approach to periodic reviews