Perpetual know your customer: A new approach to addressing customer due diligence

Hnery Balani
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Hnery Balani: Encompass Corporation UK, UK

Journal of Financial Compliance, 2022, vol. 5, issue 4, 307-314

Abstract: Perpetual Know Your Customer (pKYC) represents a new and alternative approach to the traditional customer due diligence process currently practised at many regulated financial institutions (FIs) today. FIs adopt a periodic approach in identifying anti-money laundering risks within their customer base as part of a government regulated compliance process. Conventional KYC processes can be ineffective and costly in managing compliance risks, with cumbersome and complex customer onboarding processes. Increasingly, FIs see value in adopting pKYC approaches either alongside or as a replacement for their current processes. This article describes pKYC and how it differs from traditional KYC processes; the benefits and challenges to adopting pKYC; and the right use cases within an FI. pKYC is a continual approach to customer due diligence, potentially replacing traditional forms of customer onboarding. This alternative approach, while it increases operational costs within an FI, does provide benefits in terms of reduced compliance risk exposure. This reduced exposure is achieved as a result of adapting continual review processes leveraging current customer and external reference data during the review process. This article finds that not all FIs can necessarily benefit from pKYC despite the inherent advantages. FIs need to consider their current KYC process that would be appropriate for their line of business. Lines of business that have high risk portfolios and volumes are typically the best candidates for adopting pKYC, compared to FIs that have relatively static and smaller customer bases. The article also provides the reader with a framework for understanding pKYC in the context of adopting such an approach in their FIs so as to make a more informed decision.

Keywords: know your customer; customer due diligence; anti-money laundering; onboarding; financial crime compliance; perpetual KYC; continuous KYC (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2022
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