From Re-KYC to Perpetual KYC: The New Standard in Compliance
From Re-KYC to Perpetual KYC: The New Standard in Compliance
Re-KYC (Know Your Customer) or reviewing KYC details or KYC refresh is a mandatory Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) requirement in UAE. The guidelines for Designated Non-Financial Businesses and Professions (DNFBPs) provide for periodic updates of Customer Due Diligence (CDD) information. However, in an increasingly dynamic technological landscape, the concept of perpetual KYC or pKYC has emerged.
This infographic strives to bring out the characteristics of pKYC, which compensate for and overcome the shortcomings encountered during the re-KYC process and emphasizing how re-KYC is the new standard in AML compliance, making selection and switch to pKYC a smarter choice for DNFBPs for mitigating their money laundering and terrorism financing risks (ML/TF).
Here are a few pointers indicating how pKYC outperforms reKYC.
Better ML/TF Risk Management:
Better ML/TF risk management can be ensured with the help of perpetual KYC. For instance, perpetual KYC identifies and notifies about material changes in customer KYC information in real-time whereas the factors triggering the re-KYC process are event or frequency-based, leading to the perpetual KYC approach being proactive in risk mitigation in contrast to the reactive mode of re-KYC where the circumstances, timing, and frequency of re-KYC work in a pre-determined or pre-set manner, not considering real-time changes in customer information.
In re-KYC the review of customer profile or KYC information is done on the basis of the customer risk rating assigned to that particular customer, and a blind spot exists where there might be a material change in customer’s KYC details leading to a change in their customer risk rating from low to high, which would go unnoticed until the pre-determined re-KYC cycle is triggered, creating loophole for ML/TF actors to find their way into the economy through the DNFBP. Perpetual KYC in turn protects DNFBPs from ML/TF risks by real-time identification of changes in customer KYC information.
Streamlined KYC Remediation:
KYC remediation is a process which analyses the validity and relevance of the KYC procedure conducted by a DNFBP to find any inconsistencies or anomalies and remedy them in a timely manner.
The biggest contribution of the adoption of pKYC practice through a tool or software is with regards to streamlining the KYC remediation process by reducing the instances requiring KYC remediation by addressing most changes in customer profiles in real-time, reducing the need to remediate errors or issues found during KYC remediation process in future. This new standard set by pKYC outperforms reKYC whose accuracy and relevance can only be found during KYC remediation.
Enhanced Data Quality:
As changes in customer details are tracked in real time through pKYC, the data quality of CDD information is enhanced due to not becoming redundant due to document expiries. Redundancy is one aspect; pKYC also helps enhance data quality due to it being dependent on Artificial Intelligence and Machine Learning, or a combination of both components, which accepts or synthesises customer data and stores it in a prescribed format, resulting in better data quality for record-keeping as well.
Also, when the currentness of customer data is compared among re-KYC and pKYC, pKYC outperforms reKYC, making it new standard in AML compliance, as customer data in reKYC is only as current as the latest KYC review or refresh cycle, whereas customer data collected through pKYC is always the latest and updated.
Enhanced Operational Efficiency:
With better ML/TF risk management, streamlined KYC remediation, and enhanced data quality for CDD procedure, a DNFBP is bound to achieve enhanced operational efficiency through adoption of pKYC as it solves a lot of delays, overlaps, and internal coordination requirements among the members of AML compliance team and KYC analysts in conducting re-KYC, KYC remediation, and ongoing monitoring of business relationships through automation and intervention through notifications and alerts only when anomaly or red-flags are detected.
World-Class Customer Experience:
What helps with world-class customer experience is the customer-centric focus that anticipates customer issues and strives to drive solutions rather than shift the burden of KYC compliance on customers. Perpetual KYC is one such solution that embeds compliance in the customer lifecycle or customer journey, always keeping track of changes in customer KYC details, reducing the friction that may arise during the KYC remediation process. The use of technology for pKYC and training personnel to handle pKYC tools gives a competitive advantage to the DNFBP, thus enhancing customer experience and making pKYC a new AML compliance standard.
Compliance Cost Reduction:
To better understand how pKYC helps with compliance cost reduction, it’s important to understand compliance cost reduction is the result of multiple factors, such as enhanced operational efficiency being a major contributor along with a streamlined KYC remediation process. The proactive approach of pKYC helps in bringing down the cost of compliance in the long run. It facilitates in lessening the cost of KYC remediation as it helps update customer information and documents in real-time, helping ensure the relevance of customer details and documents, and tracking any shift in customers’ risk profiles, reducing situations warranting KYC remediation and bringing down compliance costs.
Conclusion
To conclude, when a DNFBP thinks in terms of having a KYC model that embodies principles of risk-based approach, perpetual KYC is the answer, helping the DNFBP to re-calibrate its ML/TF risk mitigation measures in real-time in alignment with changes in customer’s KYC information which makes pKYC a new standard in AML compliance.
