A Significant Landscape in Banking Sector – Periodic to Perpetual KYC

Lettering KYC with abstract persona on keyboard.

Last Updated on February 25, 2024 by Ali Hamza

Implementing effective “Know Your Customer” (KYC) procedures has been a long-standing challenge for financial institutions, resulting in billions of dollars in investment and numerous fines for violations for key industry leaders. To overcome the complexity and inconvenience of traditional compliance methods, KYC procedures must evolve to reduce business costs while maintaining compliance.

Current Scenarios in KYC Banking

In a conventional setup, KYC processes are implemented on an ongoing basis, with the frequency of the reviews varying across financial institutions. But a sizable number of flaws in the conventional, periodic KYC process have made a transition even more necessary. 

Let’s look at what occurs during a periodic KYC review process first to proceed further;

What is Periodic KYC?

Periodic KYC entails a precise process that involves providing the bank’s most recent proof of identity and address. In the case of opening a bank account, the data is initially collected and then updated periodically.

Periodic KYC Procedure

The matching of civil servants usually evaluates the following elements of the Medic and Kyc processes.

  1. Evaluation of customer information: Customer identity cards are included to collect and confirm the full name, date, address, identification number, and data modification.
  2. Selection of Lists and Sanctions of Global and National Customer Control
  3. Risk distribution when there is a significant change in identity cards (eg other housing addresses)
  4. Customers are compared to the usual evaluation of transactions and the expected services of predictive accounts (they are done by general identification and screening).
  5. Determining potentially suspicious activities

Pinpointing the Problems with Periodic KYC

Responding to a bank’s regular KYC requests can drive customers crazy when mishandled. Occasionally, customers need to come in person to verify documents. Several companies have been able to eliminate manual document verification methods with the advent of AI-based identity verification solutions. However, there is still a sizable amount of inefficiency. It is often difficult for KYC professionals to keep a balance between the expectations of banks and customers. Repeated requests for additional documents lead to customer dissatisfaction and frustration, which can harm the financial well-being of the company. Secure customer onboarding and regular KYC checks have become more expensive and resource-intensive as global compliance standards increase. As a result, KYC procedures often end up at the bottom of the to-do list, ultimately costing banks huge reputational fines for non-compliance.

What is Perpetual KYC?

KYC, or “know your customer,” is a process in which customer data is continually updated regardless of the interval between events. Bank’s internal know your customer policy defines perpetual KYC triggers. This usually includes any events that display outdated information.

When integrated with powerful perpetual KYC verification tools, customers will no longer perceive the KYC process as meaningful and burdensome for them. By continuously collecting up-to-date customer data, it can improve its risk profile, allowing banks to focus on customer information or accounts as circumstances change. In addition, automated AI-based processes continuously update records when minor, non-critical changes occur.

What Makes Perpetual KYC Different?

AML and KYC regulations are becoming increasingly stringent, so having accurate information about your customers has never been more important. A data-driven approach and perpetual KYC verification on their customers are essential if banks are to survive in a highly competitive market. Among other things, the advantages of perpetual KYC include:

Improving Customer Relationships

Relationship managers act as intermediaries for perpetual KYC. They are responsible for requesting updated information and additional documentation from customers and passing this information on to the KYC Compliance Officer. However, repeated inquiries and resulting delays in transactions make customers dissatisfied with the bank’s customer service. The relationship can suffer long-term damage as a result. Moving to a perpetual KYC process can eliminate this friction by significantly reducing the number of customer inquiries. Businesses update customers’ information on the basis of event-based triggers rather than predefined time periods.

Reducing Risks

Imagine a scenario where a bank takes on a low-risk client. Companies update their information once every 5 years with perpetual KYC. After one year of the five-year evaluation period, this person is appointed Secretary General and becomes a UBO. A similar risk also exists for the company’s parent company. If the customer does not inform the bank about this change, it may go unnoticed for the next four years. This can increase the bank’s risk of financial crimes. On the other hand, if the same bank had switched to perpetual KYC, a customer’s status change would have been corrected within seconds. We have therefore started an immediate review and updated the risk assessment.

How Does Perpetual KYC Help Businesses?

  • Businesses implement traditional KYC periodically in conventional systems
  • The cost of KYC is increasing, and customer satisfaction is decreasing, which makes periodic KYC insufficient
  • In addition to reducing risk and eliminating friction, perpetual KYC can fill these gaps and provide an edge to the businesses