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Initial KYC checks (or know your customer checks) are generally carried out by businesses at the onboarding stage, in order to verify the identity of a potential customer or client. For firms in the regulated sector, KYC and KYB checks are a crucial element of AML compliance. They help to assess the level of risk that an individual or business poses to your company, and should flag any previous involvement with financial crime.
Like KYC checks, pKYC checks (or perpetual know your customer checks) verify the identity and risk status of a client or customer. However, while a standard KYC programme might run checks annually, or every few years after the onboarding stage, perpetual KYC involves the continual monitoring of an individual or business.
pKYC is a more dynamic process, whereby – after the initial checks – the status and ID of a client is consistently cross-referenced with external databases. Rather than taking place at set intervals, perpetual KYC checks may be triggered in response to a key event relating to the client, or any other change in business dealings.
This sophisticated system results in an extremely accurate digital KYC profile for every individual or business, which is automatically updated whenever necessary. In theory, this technology could make manual checks, and periodic (or traditional) KYC redundant, but it’s more likely that a hybrid approach will be implemented by many firms moving forward.
While not yet available on the market, pKYC promises to be one of the most robust compliance measures ever developed. Adopting a perpetual KYC process has a whole host of benefits.
Ongoing KYC monitoring reduces the risk of inadvertent involvement in financial crime, as it ensures your company is informed of any red flags as soon as possible.
Implementing pKYC will also strengthen your risk-based approach to AML compliance.
This process uses fewer resources than conventional periodic KYC checks, or manual KYC checks.
Thanks to its automated triggers, pKYC should also drive down operating costs; it could even reduce the cost of your compliance effort overall.
Perpetual KYC makes out-of-date records a thing of the past, so you’ll always have the most recent information available for your customer or client at your fingertips.
pKYC is still a relatively new concept on the AML compliance scene, and as so many businesses still rely on archaic methods of identity verification, switching to perpetual KYC is proving challenging throughout the industry.
Firstly, an efficient pKYC system can’t take place in a company which is performing its initial KYC checks via the manual examination of physical documents. With this in mind, only firms which have already upgraded to electronic ID verification can also adopt pKYC, as changes in customer information are impossible to detect from paper ID.
Any organisation looking to implement pKYC will also need to have an advanced digital record keeping system, informed by both internal data and external public or paid-for sources.
On top of this, the compliance team of the business in question will need to establish what type of key events they consider significant enough to trigger pKYC checks. These could include seemingly innocuous amendments, like an updated customer address, as well as more serious alerts, such as a change in sanctions status.
At present, there’s no single pKYC product on the market, but SmartSearch already offers a range of intelligent automated software, which performs ongoing monitoring and retrospective checks for both businesses and individuals. Using reliable global data sources, our tools perpetually check clients against PEP and sanctions lists. With these services, so you’ll be alerted to any change in customer status, and prompted to carry out enhanced due diligence on any clients which are newly classified as high risk.
The implementation of pKYC will take this even further – as companies will need to integrate information from any number of public and private databases (like the electoral roll and utility companies) into their screening processes. This data should enable businesses to identify any suspicious discrepancies in customer details, and reduce the risk of money laundering.
While the SmartSearch platform already covers several of the key components of pKYC, a more comprehensive pKYC solution is in development, with a projected launch date in early 2022. With this industry-leading solution, we should be able to pave the way for firms in the regulated sector to smoothly transition from periodic KYC to pKYC, and reap all the benefits that this AML compliance measure has to offer.