Financial Crime World

Implementing Stable, Scalable Perpetual KYC: Overcoming Challenges for Financial Institutions

Financial institutions are facing increasing demands to implement perpetual know-your-customer (KYC) requirements. However, this journey is fraught with obstacles that can hinder successful implementation. In this article, we will explore the key challenges in implementing perpetual KYC and provide a recommended approach for overcoming these challenges.

Key Challenges in Implementing Perpetual KYC

Disparate Systems and Sources

Financial institutions often lack integrated systems that provide a holistic view of customers and monitor their risk profiles internally. This makes it difficult to implement an organization-wide perpetual KYC solution.

Non-Standardization of KYC Models and Regulations

The absence of a standardized KYC model globally means that processes and rules for collecting, maintaining, and updating client data differ vastly across banking organizations.

Limitations of Publicly Available Sources

Customer data often comes from publicly available sources, which may be inaccurate, incomplete, or unconfirmed. Additionally, privacy regulations and customer concerns make it challenging to verify the accuracy of gathered data.

Incomplete Data Capture during Onboarding Process

Financial institutions typically only capture mandatory fields during onboarding, ignoring value-added fields, which can reduce the accuracy of adverse media matches due to limited customer data points.

Building a Stable, Scalable Perpetual KYC Framework

To overcome these challenges, financial institutions must develop a robust perpetual KYC framework that includes three essential steps:

Step 1: Scrutinize Identification Documents and Verify Customers’ Identities

  • Review identification documents carefully
  • Verify customers’ identities against sanctions lists

Step 2: Implement Customer Due Diligence Measures

  • Collect all available data from trusted sources
  • Determine the purpose of business relationships
  • Continuous periodic monitoring to ensure consistency with risk profiles

Step 3: Schedule KYC Rereviews Based on Customers’ Risk Profiles

  • Higher-risk customers screened more frequently
  • Lower-risk customers screened less frequently

To overcome the challenges in implementing perpetual KYC, financial institutions should focus on:

Data Sourcing

  • Monitor customers continuously against internal and external data changes that may impact their customer profile

Internal Data Sources

  • Leverage structured data from customer databases, watch lists, and account details

External Data Sources

  • Utilize unstructured data from adverse media, negative news, and external watch lists

Data Consolidation and Enrichment

  • Cleanse, enrich, and extract relevant user data to provide input for customer due diligence processes

Customer Due Diligence

  • Define risk factors
  • Screen against defined events
  • Trigger the customer due diligence process when necessary

By addressing these challenges and implementing a robust perpetual KYC framework, financial institutions can ensure compliance with regulatory requirements while minimizing risks and maximizing efficiency.