Perpetual Know Your Customer (pKYC) - also known as continual KYC - is the ongoing process by which businesses continuously update customer information as a part of their risk management strategy and is a step on from a standard Know Your Customer (KYC) process. The latest concept within customer due diligence, pKYC is gaining traction because, not only does it offer a much more dynamic and secure risk management solution now but will automatically evolve as clients’ circumstances change thereby reducing risk and the level of period work required by regulated firms, which is why it is fast establishing itself as the future of KYC.
In the UK, running KYC checks on all customers is a legal requirement for all firms in the regulated sector i.e. those regularly handling money on behalf of others. Examples of businesses that are regulated, and therefore must have stringent checks and controls in place to mitigate the risk of money laundering and other financial crime, includes banks and other financial institutions, certain insurance companies and intermediaries, tax advisers, estate agents, accountants and legal firms.
Regulated organisations must apply a risk-based approach to their KYC, anti-money laundering and compliance, and this will generally include:
• Customer due diligence (CDD) – all customers and beneficial owners must be identified and verified to ensure they are who they say they are and to enable an assessment of any risk they may pose.
• Enhanced customer due diligence (ECDD) - businesses must carry out extra checks if the initial verification and screening suggests a greater potential for money laundering
• Ongoing monitoring - once clients have been onboarded, their status needs to be regularly ‘re-checked’ to ensure the risk they pose has not changed.
• Record keeping – all regulated firms must keep accurate and up to date records of all checks that have been completed, and proof that these checks are monitored on an ongoing basis. This will also ensure they are always prepared for audit.
The KYC process involves an initial customer check - identification, verification and screening for sanctions and PEPs - followed by a level of ongoing monitoring, driven by regulatory requirements and the company’s own risk-based approach.
The reason many firms are looking to transition to a pKYC model is, not only is it far more reliable due to the fact it is constantly being updated to provide ongoing compliance, but because it is automated, it requires much less effort on the part of the regulated firm. Instead of doing an initial check, and then having to revisit the client each year to assess if their risk level has changed, pKYC enables the firm to sit back, rest assured that their customer database is always up to date and fully compliant.
While a traditional KYC programme is very ‘transactional’ i.e. you run the initial check and then, once the verification period is up, run another, a pKYC programme is much more dynamic. Instead of having to specifically run a new check to see if a client’s risk profile has changed, pKYC offers client lifecycle management because it is constantly monitoring for any relevant changes. The continual nature of a pKYC solution means that the business has a full picture of their client, giving them a much more robust and accurate risk-management process.
The reason many firms are looking to transition to a pKYC model is, not only is it far more reliable due to the fact it is constantly being updated to provide ongoing compliance, but because it is automated, it requires much less effort on the part of the regulated firm. Instead of doing an initial check, and then having to revisit the client each year to assess if their risk level has changed, pKYC enables the firm to sit back, rest assured that their customer database is always up to date and fully compliant.
Ongoing monitoring is an automated compliance process by which firms can regularly check the status of their clients by screening them against PEP and sanctions lists every night for any matches. This process rechecks the same lists and alerts used for the initial screening to ascertain if the status of any client changes, and if so, whether or not this increases the risk that client poses to the business.
While ongoing monitoring sounds like it offers a pKYC solution, it only covers a small part of what a full pKYC programme should offer. To achieve a pKYC process, a business must have procedures in place whereby every change to their customer’s status is identified. pKYC is a digital solution that is able to continuously monitor all relevant sources of information for events and changes that could impact a customer’s risk profile and then automatically assess and act on this information.
So, where currently, ongoing monitoring is able to alert the business to changes in a client’s PEP and sanctions status, pKYC will check a huge number of external and internal sources in order to monitor any and every change that could be relevant, for example, changes to the customers’ name, home address, phone number or email address, their place of work, their working status, their credit file, their bank, their utility provider. For corporates, it would monitor changes to the corporate structure of a business, including changes in ownership and Ultimate Beneficial Owners, as well as monitoring for fraud signals and other suspicious activity across the entire database.
In addition to the technology and information sources needed for standard KYC, businesses that want to transition to pKYC will need to aggregate and enrich their data to enable a ‘full view’ of each customer on their database.
This involves not only utilising a much wider range of data sources, but being able to manage, manipulate, filter and configure that data much more effectively and efficiently.
For example, as well as day to day changes to watchlists records, and notifications for changes on shareholder and director information, firms that want to take a more dynamic approach to KYC will also need to overlay multiple data sources to get a much fuller picture of their customers.
They will also need to utilise advanced record filtering systems to enable enhanced reruns which can be tailored to the business, both in terms of timeframes and risk profiles, which takes a huge amount of technical and financial resource into APIs and other integrations.
Over the past year or so, some of the bigger banks have started to put their own ‘pKYC’ systems in place, by outsourcing the vast majority of the functionality to third parties. But, due to the time, resources and expertise needed to set up pKYC in this way, it is very expensive to build and hugely
However, pKYC solutions have come on in leaps and bounds over the past 12months and SmartSearch is now able to offer a standalone pKYC solution.
For many years now, SmartSearch’s cutting edge technology has had the capability to provide certain aspects of pKYC, and following recent enhancements to the platform, SmartSearch is now able to offer a preliminary pKYC solution to its customers. Once the enhancements been fully rolled out, further developments and advances will be made to the system to create a fully functional pKYC solution.
SmartSearch said: “Our latest set of ongoing enhancements has enabled a wide range of new functions and services, bringing the platform a step ahead of our competitors in terms of offering a full pKYC solution.
“We are now able to create a ‘one full view’ portfolio for our customers’ individual and business clients, with advanced filters enabling them to search for and identify records with a specific risk profile i.e. nationality or residence, in seconds.
“We can also now offer advanced re-runs on any timeframe based on any risk profile, which can be configured to pass criteria in line with the customers’ individual risk appetite.
“Users of the platform are also now able to see organisational structures with a helicopter view of teams, regions, company hierarchies and custom defined groups, making it easier to view compliance data, and now also have the ability to bulk upload customer data themselves – something which previously could not be performed by individual users. And, as new services are added, these can be retrospectively run against existing client records.”
One of the key differentiators of SmartSearch is its ability to be both reactive to regulatory changes and proactive both in terms of compliance and technology. For example, years before rules around identifying Ultimate Beneficial Owners (UBOs) of corporate clients came into force, SmartSearch had already built the capacity to ascertain this information within its business checks service.
Two years before the pandemic hit, SmartSearch launched a fully integrated app for onboarding, something that ensured its customers were ahead of the game when lockdowns were enforced, and all business moved online. Furthermore, the SmartSearch system has been on ‘the cloud’ long before it became a buzz word, future proofing its clients to ensure they were able to continue with business as usual when workplaces were shut down.
SmartSearch has been working towards pKYC for some time now, and will continue to enhance the service to ensure customers will be able to reap the benefits of the most advanced KYC solution available. The latest innovations include:
• Document expiry alerts –automatically running new identity and verification searches when the ID is due for renewal
• Advanced report builder – this will enable us to tailor our client’s’ data views and create configurable dashboards for instant up-to-date compliance snapshots
• Custom watchlists – this will enable clients to tailor due diligence activity in
line with their own business’ needs
• Automated searches- escalation paths and notifications according to
individual customer journeys
• Automatically assigning subject records- to relevant users to keep on top of
due diligence
• Automated reports- to ensure the right users are kept up-to-date
• User-specific ‘To Do’ lists- to ensure compliance activity is actioned in good time
SmartSearch said: “For some time now, we have had the technology to create dynamic KYC solutions for all our clients. What we are now able to offer is a pKYC system that is already integrated with all the data needed from external sources, has the functionality to seamlessly integrate with any internal database and is being constantly enhanced and developed to ensure it is able to offer the most dynamic and tailored pKYC solution for all our clients.”
A few years ago, regulated firms were hugely sceptical of electronic verification. Online verification was not to be trusted, and firms were only happy to verify a customer if they could physically hold their passport in their hands and look the person in the eye.
Fast forward to now, and electronic verification is not only universally recognised to be the most accurate and efficient way to onboard customers, but during lockdown, it proved to be the only way to compliantly onboard clients remotely. Furthermore, given that the latest EU money laundering directive, which was also brought into UK law, states that electronic verification should be used wherever possible, it is likely that in the not-too-distant future, electronic verification will become mandatory. It is therefore highly likely that pKYC will become the standard when it comes to risk management and customer compliance.
While compliance wise, pKYC is undeniably a fantastic tool in the fight against fraud and financial crime, offering an affordable and efficient way for firms to meet their legal requirements, there is a strong business case for a transition to a more dynamic KYC model too.