Customer Due Diligence (CDD) and Know Your Customer (KYC) solutions are essential aspects of a financial organization’s financial crime and compliance management (FCCM) program.
These solutions work as the first line of defense against malicious individuals and groups that aim to use banking, financial services, and insurance (BFSI) providers as tools in carrying out criminal activities. Examples of such activities include money laundering, fraud, and terrorist financing.
However, an effective anti money laundering program requires more than just screening customers at the beginning of a professional relationship. To be specific, BFSI companies must implement regular screening of the transactions that are carried out through their systems as well as the customers they work with.
These regular screenings must be done even if certain customers have already passed the initial KYC and CDD process. Doing so ensures that these entities and their accounts are not being used as tools for executing financial criminal activities throughout their relationship with their financial services provider. This ongoing process of checking and verification is called Perpetual KYC.
What Is Perpetual KYC?
Perpetual KYC refers to the automation of the KYC process and involves the periodic reverifying of customers. This means consistently monitoring customer transactions and each customer’s relationship with the BFSI provider.
A step up from basic forms of verification, Perpetual KYC lets financial institutions confirm that each of an account’s transactions is initiated or received by the person who owns the said account.
Screening large amounts of transaction data may sound tedious at first. However, the use of automation and contextualization actually reduces the amount of manual intervention that the compliance team must do to effectively carry out KYC and CDD processes.
The technology that empowers financial organizations to do Perpetual KYC may be fairly new, but the process itself is quickly becoming essential to basic financial crime and compliance management programs. This fast adoption is spurred by the following benefits of implementing such a process:
Using Perpetual KYC Helps Banks Control Reputational Risks
Failing to recognize that a financial crime is taking place within an organization exposes BFSI companies to high levels of risk. On top of possibly incurring fines and penalties, a bank where financial crime has occurred is bound to suffer significant reputational damage and lose the confidence of customers.
To make matters worse, exposure to financial crime can make the said bank more vulnerable to other criminals who are looking for establishments that they can easily infiltrate.
Enabling Perpetual KYC will help financial organizations avoid these issues. Indeed, this automated process will give them the means to immediately discover and address instances of fraud, money laundering, and other forms of financial crimes that might be taking place within their systems.
Perpetual KYC Helps Organizations Comply with Regulatory Changes
Regulatory bodies are quick to adopt technological advances that can help combat financial crime. They not only welcome digital solutions, but also consider the benefits of using said solutions when updating compliance rules and regulations.
Perpetual KYC is proving to be an effective means of preventing and deterring financial crime and nipping illegal activities in the bud.
Adopting this technology early on will enable BFSI companies to keep up with the guideline changes that regulatory bodies are likely to introduce as a reaction to this new screening capability.
Perpetual KYC Can Improve Organizations’ Operational Costs
Perpetual KYC is a process that is dependent on technology, as it involves repeatedly and continuously screening and contextualizing large volumes of information almost in real-time.
This means that to carry out this process, BFSI providers must first acquire the technology that makes it possible.
While the upfront cost of doing so is significant, it will end up saving companies money in the long run. By enabling Perpetual KYC, financial organizations can optimize their processes and make them more consistent.
This, in turn, will reduce the need for manual intervention from the compliance team as well as minimize the risk of incurring fees and penalties for failing to meet compliance requirements.
Perpetual KYC Helps Organizations Take Customer Service to the Next Level
Analyzing and contextualizing each transaction has benefits that extend beyond crime prevention and regulatory compliance.
Monitoring each transaction and customer through a Perpetual KYC solution also gives financial organizations access to a wealth of information that they can use to customize the banking experiences of their corporate and retail customers.
A BFSI provider can then use the collected data to design products and services that not only address, but also anticipate the needs and wants of its target market.
At the same time, in case a client’s transactions exceed a particular threshold, a bank with Perpetual KYC can preemptively address possible security issues.
The bank can also immediately inform the concerned client about the incident and reassure them that the problem is actively being resolved. These actions can help banks prevent any possible friction in their professional client relationships.
Investing in an effective KYC and CDD program can allow any financial organization to quickly and easily screen each prospective customer that wants to access its products and services.
This, in turn, will let the said organization immediately determine precisely who it is dealing with. With this information, the organization can then decide if it can manage the level of risk that comes with working with the said entity.
Thus, by investing in Perpetual KYC, banks can enjoy and offer improved security to the individuals and organizations that they work with throughout the customer lifecycle.