Know Your Customer (KYC) is the process that businesses, including regulated entities like banks and other financial institutions, follow to verify the identity of their customers, assess their risk profile, and monitor them on an ongoing basis.
Organizations globally have been operating KYC processes for many years but growing fraud threats, anti-financial crime legislation, and sanctions regimes heighten the need for a view of risk that's "always on." In a risk-prone world with a changing regulatory landscape organizations are faced with the requirement to constantly refresh their KYC risk insights.
Traditional KYC approaches, with risk assessment and due diligence at onboarding followed by periodic reviews, have now, in many cases, become outmoded. Material risk factors associated with clients can change overnight and can't be left to surface anywhere from between 1 and 5 years (the timeframe traditionally set for periodic KYC reviews). The responsibilities of businesses and their compliance teams to understand and manage risk exposure, as well as to comply with laws, requires continual attention.
Financial institutions, global corporations, asset managers and lawyers, crypto wallets and technology providers, wealth managers and challenger banks are all aware of their responsibilities when it comes to anti-money laundering, counter-terrorist financing, and sanctions compliance. To most effectively manage compliance activity and understand risks across a counterparty network, organizations benefit from an up-to-date, accurate picture of where their greatest exposure lies across a customer base at any given time.
Periodic reviews that assess risk levels and look at changes associated with an entity's profile every one-, three-, or five-years can fall short. Identifying event-driven changes to a customer's risk profile is crucial to mitigating risks and complying with laws. For example: changes to sanctions lists; the outcome of an election; even a change of address could each alter a risk profile overnight. These changes are significant enough to require risk and compliance teams to take action - perhaps in terms of beginning enhanced due diligence or even off-boarding a client.
This is where the advantages of perpetual KYC (pKYC) begin. pKYC is a data-driven approach to risk monitoring that takes place on a continual basis, using risk-relevant data that is updated in near real-time.
pKYC is the practice of maintaining accurate customer or other third party records through an automated, integrated workflow of data checks that are always on. Monitoring global datasets, risk triggers or signals can be filtered and shared at enterprise level, highlighting where teams would be best to focus their attention.
In the evolving landscape of risk management, AI-led solutions and a unified approach can significantly enhance the effectiveness of pKYC processes. Here are some practical examples and insights on how these technologies can support pKYC:
By leveraging AI-led solutions and adopting a unified approach to risk management, organizations have the power to adopt a pKYC approach and significantly enhance efficiency across their risk management and compliance activities.
There is an increasing range of real-time data, automation, and AI-enabled technology available to help businesses understand risk and escalate issues, so decisions can be made with greater confidence at onboarding and throughout the lifecycle of a relationship.
Implementing pKYC empowers companies to have a more agile and instant response to potential risks across their counterparty network. The process of perpetual KYC (pKYC) removes the need to look at risks associated with individuals or entities at a single point in time. Instead, customer and counterparty risk profiles can be maintained in near real-time, removing the need for periodic reviews.
Adopting a pKYC approach allows for more agile responses to a world of changing risk factors.
Moody's unified risk platform integrates accurate datasets with tailored workflows to help organizations build their always-on approach to pKYC and risk monitoring. We can help implement pKYC as part of a supplier or customer lifecycle management strategy.
If you would like to talk to us about your journey to perpetual KYC, please get in touch – we would love to hear from you.