Based on our ongoing dialogue with existing and potential CoorpID customers, we have identified five KYC challenges that financial institutions (FIs) are facing today. In this series of articles, we aim to break them down one by one. In our final blog, we explore why it’s time for FIs to embrace perpetual KYC.
As FIs will be aware, the KYC process is never truly complete. Ongoing monitoring is needed to ensure that changing customer relationships continue to meet compliance requirements. Instead of conducting periodic manual reviews, many FIs are exploring the possibility of adopting a system of perpetual KYC (P-KYC). This will require real-time surveillance to recognise status changes, update customer risk profiles, and react to market shifts in real-time, guided by automation.
Closing your KYC gaps history
With the nature of customer circumstances in a constant state of flux, regulators will take a dim view of any FI that believes their KYC due diligence has been put to bed simply because they carried out thorough checks during the onboarding process. Instead, FIs must regularly review their customer relationships – for both high and low-risk customers. However, adopting P-KYC requires FIs to have access to a steady stream of accurate data and a high level of digital sophistication. Although six out of 10 respondents to a Moody’s survey admitted to being familiar with the concept of P-KYC and understood its transformative potential, many FIs are still struggling to implement it.
FIs have consistently seen the financial impact of a failure to conduct ongoing reviews on their customers, with fines in the order of millions of dollars. The reputational backlash may be even more damaging – and long-lasting. Powered by digital solutions, P-KYC aims to avoid these negative outcomes by leveraging automation throughout the end-to-end periodic KYC review process. This doesn’t eliminate the need for manual input entirely, but KYC teams can focus on a smaller number of more complex customer cases, greatly reducing the burden on FIs.
The advantages of P-KYC
In monitoring customer profiles on an ongoing basis, P-KYC uses previously collected information, continuously identifying, assessing and validating changes in circumstances. As such, FIs can refresh their customer information more frequently by applying new and existing technologies to their KYC process.
According to PwC, the adoption of P-KYC could reduce KYC-related outgoings for a medium-sized bank by as much as 60% to 80% due to the decreased need for human intervention. Another advantage that comes from the successful deployment of P-KYC is the improved reliability of data. Automating more steps within the KYC process lowers the likelihood of human errors undermining an Fi’s attempts to achieve compliance. Similarly, the use of more advanced toolings within P-KYC, such as artificial intelligence and machine learning, can further enhance an FI’s KYC strategy without the need to commit more time to manual reviews.
By some distance, FIs see the main driver for P-KYC as the reduction of risk between reviews. This is understandable given that periodic manual reviews will never be able to keep up with changes in customer circumstances. Failure to monitor these changes in real-time can be hugely costly for FIs.
Fortunately, digital tools like CoorpID can support FIs in delivering P-KYC. Achieving P-KYC may appear daunting, of course, which is why FIs need an end-to-end solution that is event-driven and encompasses automated outreach solutions so changes in customer circumstances never fall through the gaps.
“CoorpID is an ideal tool to streamline and standardise the information-gathering process. ING uses CoorpID as part of our KYC improvement journey as it helps to reduce the KYC compliance burden for both customers and the bank.” – Anthony van Vliet, Global Head of KYC for Wholesale Banking at ING.
The KYC process may never be fully complete but that doesn’t mean FIs are faced with an insurmountable challenge. The move to P-KYC means digital solutions take on the task of notifying FIs automatically when changes to customer circumstances occur. With the help of RegTech tools like CoorpID, KYC can become a constantly evolving process, without requiring a constantly increasing amount of resources.