Know Your Customer (KYC) is an essential element of anti-money laundering (AML) and counter-terrorism financing (CTF) compliance programs. KYC involves verifying the identity of customers and determining their suitability for a financial institution's products or services. KYC applies to both Consumer/Personal and Business/Commercial customers, including Beneficial Ownership for business entities. However, KYC is not a one-time event, but rather an ongoing process that requires regular updates to customer information. This article will introduce you to perpetual KYC process flows and what you need to know about them.
What is a Perpetual KYC Process?
Perpetual KYC (PKYC) is a continuous, risk-based process that financial institutions must implement to monitor customer’s activity and changes to their profiles. PKYC processes require capturing data on customer information, financial transactions, and risk profiles at account opening. The data captured is then analyzed against a set of pre-defined rules to identify any changes in the risk profile of the customer. For example, the process may alert the institution of any changes in the customer's address, the size or frequency of their transactions, the addition of new accounts, new authorized representatives or signers, and changes in business type to name a few.
The Importance of Perpetual KYC Process Flows
PKYC processes are critical for financial institutions to identify customers who may represent an elevated risk of money laundering or terrorist financing. Instead of conducting KYC only at the onboarding stage, PKYC processes are designed to bring a customer's risk profile up to date in real-time. This enables institutions to reduce the risk of financial crime and ensure compliance with AML/CTF requirements.
PKYC processes have become more important due to the increasingly digital nature of the financial services industry. With the rise of digital transformation, customers are signing up for online services at an unprecedented rate. As a result, it’s essential that financial institutions implement PKYC processes and ensure that customer data remains accurate and up to date.
Implementing a Perpetual KYC Process
To implement a PKYC process, financial institutions need to identify the rules and behaviors that will trigger alerts in their system. A triggering event could be a sanction change or any media updates, both growth or negative news. The institution must also implement a system capable of capturing, storing, and analyzing customer data in real or near-real time.
PKYC processes require a more significant investment in technology and staffing than traditional KYC practices. However, the benefits of detecting and preventing money laundering and terrorist financing outweigh the costs of implementing PKYC processes. Regulatory deficiencies found during Audits and Fed Exams have cost financial institutions not only fines and penalties, but reputational harm, from failure to identify risky changes.
Good News and Bad News
The Good News is Syntrove understands the PKYC landscape and regulatory changes. With experienced leadership that has occupied your positions in financial institutions we have proven solutions that take a risk-based approach, that are fully configurable, and tech enabled for effective and efficient monitoring and updating for your customer base. Syntrove’s tech enabled services has leading edge technology and multiple partnerships to help ensure effective and consistent outcomes. Final decisioning, using a risk-based approach, can be configured to your institution's needs. Outcomes can be managed with your in-house staff, or our team of trained and certified analysts. Syntrove’s Rapid Deployment Team is available to assist in getting and keeping you compliant. Our analysts are available for temporary projects or longer-term remediation needs, including backlogs and volume spikes.
A Perpetual KYC process is a continuous, risk-based process that helps financial institutions reduce the risk of financial crime and ensure compliance with AML/CTF requirements. PKYC processes require capturing, storing, and analyzing customer data in real-time. Implementing PKYC processes involves significant investment in technology and staffing, but the benefits of detecting and preventing money laundering and terrorist financing far outweigh the costs. Financial institutions must implement PKYC processes as part of their AML/CTF compliance programs to stay ahead of the evolving threats of financial crime.