Financial Institutions Must Prepare for Challenges of Implementing Perpetual KYC Framework

As the financial industry continues to evolve, perpetual Know Your Customer (KYC) requirements are becoming increasingly important for banks and other financial institutions. However, implementing such a framework is not without its challenges.

Disparate Systems and Sources: A Major Hurdle

Many organizations do not have integrated systems that provide a holistic view of the customer and monitor their risk profile internally, making it difficult to implement an organization-wide perpetual KYC solution.

Non-integrated systems lead to inconsistencies in data collection and processing.
Limited visibility into customer behavior and activities.

Lack of Standardization: A Challenge to Compliance

With no standardized model globally, banks face varying processes and rules for collecting, maintaining, and updating client data, leading to inefficiencies and inconsistencies.

Different regulations and guidelines across countries and regions.
Inconsistent application of KYC requirements by financial institutions.

Limitations of Publicly Available Sources: A Threat to Accuracy

Customer information gathered from public sources may be inaccurate, incomplete, or unconfirmed, making it difficult for banks to verify its authenticity.

Limited availability of accurate and reliable data sources.
Risk of data manipulation or falsification.

Incomplete Data Capture: A Barrier to Effective Adverse Media Matches

Banks often only capture data for mandatory fields, leaving out valuable additional information that could provide a more comprehensive understanding of their customers.

Incomplete data sets hinder the accuracy of adverse media matches.
Risk of missing critical information about customers.

Why Perpetual KYC Framework is Essential

Despite these challenges, financial institutions must prioritize building a robust perpetual KYC framework to stay ahead of regulatory requirements and maintain customer trust.

Elements of a Successful Perpetual KYC Framework

A stable, scalable perpetual KYC framework consists of three essential elements:

Acquiring accurate identification documents at the start of the relationship.
Implementing customer due diligence measures throughout the relationship.
Scheduling regular KYC reviews based on the customer’s risk profile.

Data Sourcing and Consolidation: A Critical Step

For a successful implementation, financial institutions must also consider data sourcing, internal and external sources, including public records, adverse media, and watch lists. Data consolidation and enrichment are critical steps in this process, involving:

Cleansing and extracting relevant information.
Removing duplicates and ensuring data accuracy.

Customer Due Diligence: A Key Component

The collected data is then used for customer due diligence, screening against defined events such as negative news and sanctions lists. If a change occurs that exceeds the defined threshold, the customer due diligence process is triggered, generating reports and alerts for further action.

Conclusion

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While implementing a perpetual KYC framework presents several challenges, financial institutions must prioritize building a robust and scalable solution to stay ahead of regulatory requirements and maintain customer trust. By understanding the key elements of a successful implementation, banks can navigate these challenges and establish a program that is effective, efficient, and compliant.