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Financial Institutions Must Anticipate Challenges in Implementing Scalable Perpetual KYC Framework
As financial institutions strive to implement a scalable perpetual Know Your Customer (KYC) framework, they must also prepare for the potential challenges that come with such an approach. A recent report highlights three key roadblocks that organizations may encounter when implementing an organization-wide perpetual KYC solution.
Disparate Systems and Sources
The biggest hurdle in implementing a perpetual KYC framework is the lack of integrated systems that provide a holistic view of the customer. Financial institutions often have disparate systems that do not share data seamlessly, making it difficult to monitor customer risk profiles internally.
Non-Standardization of KYC Model/Regulations
The varying nature of KYC and Anti-Money Laundering (AML) regulations globally means that financial institutions cannot follow a uniform KYC model. This lack of standardization leads to differences in processes and rules for collecting, maintaining, and updating customer data across organizations.
Limitations of Publicly Available Sources
Customer data is often gathered from publicly available sources that may be inaccurate, incomplete, or unconfirmed. Additionally, privacy regulations and customer concerns make it challenging for banks to verify the accuracy of the data collected.
Incomplete Data Capture During Onboarding Process
Banks typically capture only mandatory fields during the onboarding process, ignoring value-added fields. This limited data availability can reduce the accuracy of adverse media matches and make it difficult to assess customer risk profiles accurately.
To overcome these challenges, financial institutions must focus on building a robust perpetual KYC framework that includes three essential elements:
- Scrutinizing identification documents and checking for sanctions lists during customer acquisition.
- Implementing customer due diligence measures, including collecting data from trusted sources, determining the purpose of business relationships, and continuous monitoring of customer activities.
- Scheduling regular KYC reviews based on customer risk profiles.
A recommended approach to implementing a successful perpetual KYC program involves:
- Utilizing multiple internal and external data sources to monitor customers continuously against changes that impact their profile.
- Consolidating and enriching data from various sources, including structured and unstructured formats.
- Applying technology to extract helpful information from external data sources.
- Defining firm-level policies and procedures for customer due diligence and risk assessment.
By anticipating the challenges involved in implementing a perpetual KYC framework, financial institutions can take proactive steps to overcome these hurdles and ensure the success of their program.