Moving to a Perpetual KYC Model: The Benefits and Challenges

The AML/KYC onboarding process within financial services has been crying out for greater efficiency for a long while. It has probed organizations to look towards data-led approaches and automation, particularly a Perpetual KYC model (PKYC) which can contribute to ironing out complex compliance processes and reduce costs. However, the industry’s move towards implementing a PKYC approach has been slow because, as is the reality of big business changes, other programs have taken priority.

Yet, the pandemic has reinstated the immediacy businesses need to take in implementing the PKYC approach to maintain client files without the need for a full manual periodic review. Not doing so up to now has meant organizations have encountered numerous issues with significant manual work, particularly in offshore countries, which creates vulnerabilities. As a result, in some cases, businesses have been unable to take on new customers due to a sheer lack of resources.

As many financial services organizations are on the cusp of implementing a perpetual KYC model, this article will outline the benefits and challenges you can expect to encounter during the transition.

The Challenges

Moving to a PKYC approach requires three main elements to align. These are:

  1. a solid data-led approach to sourcing the required data attributes
  2. a clear policy that covers all situations, and
  3. a workflow layer that has the ability to apply rules automatically.

Getting this right means that any changes to client data can be received, with the automation pushing this feedback through all three elements.

PKYC's risk mitigation focus makes the approach an understandable priority for financial services.
 Implementing these foundational elements is usually the initial stumbling block for businesses. For example, our experience shows us that many businesses encounter issues aligning their legacy systems, which can make it difficult to achieve a single source of reliable data.

Furthermore, a solid data approach requires good-quality data, which is often a difficult standard for businesses to reach. Some of these have trouble managing internal data, while others struggle to integrate the essential external data they need to supplement their own first-party data. Businesses may also encounter challenges when resourcing the handling of alerts.

All these challenges are common when moving to a PKYC approach, but that doesn’t mean your business is not right for this transition. It’s natural to have some challenges, and they can be overcome; they shouldn’t stand in the way of financial services reaping the improvements PKYC has to offer.

The Benefits

Aside from the greater efficiency PKYC promises to bring to financial compliance, the main benefits can be broadly organized into two areas: 1) right-sizing the approach, and 2) risk mitigation.

Perpetual KYC is attractive to many financial organizations because the program can be scaled depending on the amount of change to a client’s activity, which can inform how much resource should be dedicated to an account. It eradicates the time that would usually be spent conducting “re-papering” exercises in which the entire onboarding process of a client has to be repeated. This is no doubt why some financial firms see efficiency gains and cost reductions as the main driver behind their move to PKYC.

However, most financial services organizations, in our experience, decide to adopt a PKYC approach due to the advantages it holds for risk mitigation. The approach can offer this security benefit because it captures information in a timely manner, enabling the creation of alerts that might have been missed previously. As the work and reputation of financial services is so reliant on offering clients a compliant and secure service, PKYC’s risk mitigation focus makes the approach an understandable priority.

Getting the Foundations Right

This article has supplied a broad outline of the challenges and benefits of a PKYC approach. Yet, like any theory that’s put into practice, the actual process of implementing PKYC can feel a lot more complex and difficult.

To give your business the best possible chance of success, it’s important to enter the transition as informed as you can be, with the expectation that there will be roadblocks along the way.

Also remember that this is not an overnight change, which means you should not rush the process. Instead, focus on laying the foundations first. It’s important to do this because your results will be determined by the quality of your input — the data. Getting this in place will be the toughest part of the process, especially if you’ve got lots of legacy tech baggage.

However, there is support that your financial services organization can receive through data specialists such as Dun & Bradstreet, which has been helping clients manage risks and increase margins with data since 1841.

Once past this part of the process, financial services will be able to leverage PKYC to maintain competitiveness, enhance security, and keep up with the digital transformation of the rest of the market.

Learn more about how we help compliance teams streamline their processes and manage risk more efficiently.