How pKYC Facilitates AML Compliance and Mitigates Risks?

On March 14, 2024, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $3.74 million settlement with EFG International AG,  a Swiss-based entity.

Why?

EFG International AG was found guilty of doing business with entities or groups that the US government has prohibited American companies from dealing with. This case facilitated 873 transactions that violated the US sanctions related to Russia, Cuba, and narcotics trafficking.

OFAC found that EFG’s compliance lapses, particularly in handling its omnibus accounts, resulted in U.S. entities processing transactions on behalf of sanctioned parties.

Such cases highlight the financial sector’s significance in improving its sanctions compliance and anti-money laundering (AML) frameworks.

Conventional KYC strategies, which rely on systematic assessments at regular intervals, mostly fail to identify the real-time dangers linked with the changing regulatory requirements.

This is where the Perpetual KYC (pKYC) transforms the process by providing ongoing surveillance, instant client risk assessment, and dynamic compliance monitoring.

In this article, readers will discover the following points:

• How Perpetual KYC reinforced AML compliance, using data intelligence and automation.
• How pKYC is used to minimize the potential dangers, detect suspicious money transfers, and ensure ongoing due diligence.
• The crucial lessons from the EFG enforcement case, challenges for implementing pKYC, and best practices to enhance compliance resilience.

What is Perpetual KYC?

pKYC is the upgraded version of the conventional Know Your Customer (KYC) process. It continuously monitors customer data to check for changes in their risk status in real time.

Compliance officers perform perpetual KYC due diligence by getting data from various sources. pKYC involves ongoing surveillance of payment transfers, internal databases, public records, watchlists, and sanction lists to monitor changes in customers’ risk profiles.

Regular and continuous tracking has historically been challenging. However, advanced analytics engines powered by machine learning (ML) and artificial intelligence (AI) now readily detect anomalies along with potential risk indicators in large data volumes.

Previously, data gathering, authentication, and risk assessment were done manually. Now, pKYC essentially automates these processes, enabling business entities to save time and resources required for periodic reviews.

Perpetual KYC Vs. Conventional KYC

Conventional Know Your Customer performs periodic customer reviews, whereas Perpetual KYC offers continuous real-time customer data monitoring.

The rise of money laundering and evolving regulations required financial institutions to review their customer information and comply with AML regulations regularly.

The risk of AML/CFT associated with a customer may not be the same as it was during the onboarding.

For example, a customer’s name may not be on a sanctions or criminal watchlist during onboarding, but it may appear later on. Conventional KYC occurs during customer onboarding, and the process occurs every two, three, or five years, depending on the risk profiles.

The most common flaw in conventional KYC checks is that if a financial institution performs the verification after two or three years, the customer data may be out of date. Those details then remain inaccurate for extended periods, risking reputational damage and regulatory penalties.

Whereas pKYC offers real-time AI-powered monitoring in risk services that show updated customer information to business entities. Advanced KYC is a better fit for the purpose in the financial sector and other industries.

Perks of Perpetual KYC/AML

According to the Conference of the State Bank Supervisors (CSBS), compliance costs for many banks can now constitute up to approximately 20% of their total salary.

Eliminating traditional Know Your Customer solutions and utilizing pKYC can save 60-80% on KYC costs for a medium-sized bank. This cost is about $14.4 million for the business customers and $13.2 million for their regular clients.

Automated pKYC operations offer diverse perks for various sectors. Some of the most important ones are mentioned below:

• Improved Security Measures

A Perpetual check offers financial sectors ongoing verification of client IDs. Additionally, it helps minimize the potential dangers relevant to different fraudulent activities, such as money laundering, identity theft, and illicit money transfers.

• Enhanced Client Experience

pKYC assists financial institutions in maintaining updated client information, which further helps them improve consumer experience.

When customers receive tailored and effective services from an institution that understands their needs, they are more likely to become regular clients. Such actions improve customer satisfaction and devotion to the company.

• Improved Effectiveness

pKYC improves business efficiency by automating the validation procedures. Manual tasks are now completed in real time without additional expense and resources. Therefore, perpetual KYC saves time and improves overall operational efficiency, allowing employees to focus more on productive activities.

• Adherence to Evolved Banking Standards

Perpetual Know Your Customer (pKYC) offers the financial sector with improved regulatory compliance. When a new regulation comes into effect, the banks using pKYC automatically receive an update alert. That’s how they adhere to the latest legal requirements and avoid penalties.

Key Challenges Faced by Financial Institutions When Implementing pKYC

The implementation of perpetual KYC is quite challenging for the financial sectors because of continuous verification, customer data updation, and risk mitigation. These key challenges include:

• Handling the high volume of updated customer information.
• Ensuring updates are aligned with the changing regulatory requirements.
• Promoting effective cross-departmental collaboration to manage alerts.

Despite these difficulties, pKYC is essential for financial regulatory compliance and risk mitigation. Data-driven solutions, effective procedures, and organizational collaboration make pKYC achievable.

Best Practices for a Perpetual Approach

To seamlessly integrate pKYC into their compliance framework, businesses must adopt a thorough and adaptable approach to the ever-evolving financial landscape. The best practices to achieve pKYC due diligence include:

• Client Process Documentation

Develop clear, written protocols for continuous customer data monitoring. In documenting the client procedures, regular reviewing and updating of client profiles are involved to identify potential changes in the risk status. Documenting these processes ensures regularity and facilitates operational checks.

• Advanced Data Management

Implement pKYC automation tools that have data analytics. To automate the KYC process, data collection, authentication, and ongoing monitoring are used. Automated systems efficiently scan customer profiles for unusual patterns and potential alerts, triggering alerts as needed.

• Risk-based Controls Implementation

Institutions must integrate an automated system where clients are categorized on the basis of their danger levels. High-risk clients demand more comprehensive monitoring and customer due diligence. pKYC technology facilitates customer stratification by analyzing their data and assigning risk levels based on a set of predefined criteria.

• Training and Education Initiatives

Businesses must proactively train their compliance teams on the latest regulatory changes and technological advancements in KYC solutions. This training should focus on using pKYC software, understanding and applying the results to the company’s overall compliance approach.

• Regular Reviews and Updates

Continuously monitor and update the KYC processes. This will help businesses keep up with the evolving standards and market factors.

• Customer Feedback Integration

Implement channels for client feedback in the KYC process. Insights gained from the feedback assist in simplifying the processes and making them more user-friendly. Additionally, it helps improve client satisfaction and ensure the authenticity of AML Data Sources Integrated in KYC software.

• Privacy and Security Compliance

Businesses must ensure that their KYC solutions align with the highest data security and privacy protocols. Adherence to global data protection regulations, including GDPR, is essential in protecting customer data and maintaining their client base.

• Cross-Departmental Collaboration

Create a team-oriented environment where departments such as information technology, compliance, and front-end operations collaborate effectively. Implementing KYC technology demands a collaborative approach across different facets of the organization for effective integration across the organization.

Following these best practices and using KYC solutions effectively, financial institutions can easily improve their perpetual KYC process. It will ensure robust regulatory compliance and efficiently manage evolving financial crime risks.

To get pKYC right, institutions must ensure that continuous monitoring triggers alerts only when there is a genuine change in risk status—avoiding noise from static or irrelevant data.

AML data tools should dynamically update based on official sanctions lists, watchlists, PEP databases, regulatory enforcements, and other critical records. This ensures that risk assessments remain accurate and actionable, enhancing compliance efficiency.

pKYC in AML Compliance

pKYC is regarded as an upgrade that the entire financial sector considers greatly relevant in terms of CDD.

Indeed, it propels the journey toward regulatory compliance and is essential in efforts geared toward combating financial crimes and laundering. Many are the switching firms finding that pKYC can be transformational.

Before changing to pKYC, firms need to have a clear roadmap and an agile approach. Some organizations might find it helpful to begin from one use case, perhaps with a small or even discrete segment.

Others advocate that people build a pKYC culture and learn from peers who adopted this new approach to CDD long ago.

AML Watcher is a credible solution that helps firms manage perpetual KYC. Our customer screening software combines customized risk scoring and cutting-edge API integration with automated data generation that is regularly updated every 15 minutes.

Powered by quality AML data, our pKYC solution enables obliged sectors to prevent false alerts and effectively monitor continuous changes in line with customers’ risk status.

The organizations stay informed of ongoing pertinent changes and can prioritize alerts into low, medium, and high-risk zones as per smart alerts.