Moving to a Perpetual KYC Model – the Benefits and the Challenges

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The benefits and the challenges of the financial services industry moving to a Perpetual "Know Your Customer" Model.

The AML/KYC onboarding process within financial services has been crying out for greater efficiency for a long while. It has probed organisations 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 programmes have taken priority.

69.23% of financial services organisations decide to adopt a PKYC approach due to the advantages it holds for risk mitigation.
 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 organisations have encountered numerous issues with large 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 organisations are on the cusp of implementing a perpetual KYC Model, this blog 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: a solid data led approach to sourcing the required data attributes, a clear policy that covers all situations, and a workflow layer that has the ability to apply to 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.

Getting these foundational elements right is usually where the initial stumbling blocks dwell for businesses. For example, the majority (63.64%) of businesses usually 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 nearly half (45.45%) find a difficult standard to reach. It may be because some (13.64%) have trouble managing internal data, while others (27.27%) struggle to integrate the essential external data they need to supplement their own first-party data. The same number of businesses (27.27%) encounter challenges when resourcing the handling of alerts.

All these challenges are common when moving to a PKYC approach but that does not mean your business is not right for this transition. It’s a natural part of the process and is something many businesses can overcome, so this shouldn’t perturb financial services from 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 broken into two areas, which are: right sizing the approach and risk mitigation.

Perpetual KYC is attractive to many financial organisations because the programme 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 (15.38%) financial services see efficiency gains and cost reductions as the main driver behind their move to PKYC.

However, most (69.23%) financial services organisations 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, so can receive alerts that you may have previously missed. As the work and reputation of financial services is so reliant on offering their clients a compliant and secure service, PKYC’s risk mitigation makes the approach an understandable priority.

Getting the Foundations Right

This blog has outlined the challenges and benefits of a PKYC approach straightforwardly. Yet of course, like any theory that’s put into practice, when you’re in the trenches of implementing PKYC it 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, before advancing. It’s important that you do this because your results will be determined by the quality of your input – the data. Getting this in place will be the most arduous part of the process, especially if you’ve got lots of legacy tech baggage.

However, there is support that your financial services organisation 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 access the benefits of PKYC that maintain competitiveness, security, and keep up with the digital transformation of the rest of the market.

The ‘Moving to a Perpetual KYC Model – the Benefits and the Challenges’ whitepaper can give you deeper insights as to why financial services should be considering a PKYC approach.