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Digital KYC – making the case for perpetual KYC

At the recent Global RegTech Summit Napier’s Chief Operating Officer, Greg Watson, explained how the compliance sector is now embracing the latest tech developments to shift away from burdensome periodic KYC checks to perpetual KYC.

Napier AI
May 18, 2021

Time doesn’t stand still; especially when it comes to tech. At the recent Global RegTech Summit our Chief Operating Officer, Greg Watson, explained how the compliance sector is now embracing the latest tech developments to shift away from burdensome periodic KYC checks to perpetual KYC.

Watch the replay of his presentation here:

What is perpetual KYC?

Perpetual KYC is the practice of conducting client reviews following the near real-time detection of anomalous patterns of customer behaviour. These reviews are not periodic; they are trigger-based to allow resources to be focused on customer’s presenting the highest risk.

Why do we need perpetual KYC?

1. Periodic KYC reviews are extortionately expensive and time consuming

Periodic KYC reviews have been standard practice but when you consider just how time consuming and expensive this process is, the case for perpetual KYC becomes clear. Let’s take a tier 1 investment bank with 150,000 client entities as an example. Assuming new business volumes remain flat and the proportion of high, medium and low risk clients are 12%, 26% and 62% respectively, in year five the bank will need to conduct 118,500 KYC reviews taking a total of 1.3 million hours (based on an average touch-time of 12 hours per file and excluding new business KYC processing).

2. And there are other issues with periodic KYC reviews too

The high costs associated with periodic KYC reviews are not the only issue, there are several others:

Poor client experience

The fact that clients need to be contacted multiple times, to provide information already given or information that’s available via other data sources, doesn’t make for a good client experience. Part of the issue is that while this data is typically retained by the bank, it can be difficult to access.

Operational impact

With low levels of automation and each file taking around 12 hours to review, periodic KYC reviews require a significant effort and create an ongoing challenge to recruit and retain the human resources to do so.

New business impact

Periodic KYC reviews will often take priority over new business processing and general business improvement drives. This impact may be further amplified by one-off remediation exercises.

Regulatory compliance and approval

Periodic KYC refreshes raise challenges relating to driving a consistent quality with the risk of not ‘seeing wood through the trees’ due to volumes. The ineffectiveness of periodic refreshes in mitigating risk means regulators often take an unfavourable view.

What industry trends are driving perpetual KYC?

Perpetual KYC wouldn’t be possible without a number of key industry trends and drivers, which have been fundamental building blocks.

Data lakes and KYC

A real-time customer view requires a lot of data. Data lakes therefore pool vast amounts of data, including public source, credit, internal client, social media, transactional, watch lists, KYC and policy management data.

A rich tech ecosystem and KYC

Some banking system systems can be difficult to replace but with the core technology, key enablers and accelerators in place, we are now able to work towards a sustainable state through perpetual KYC.

Key enablers

All of the following key enablers have made perpetual KYC possible.

  1. Data remediation/harmonisation
  2. Single client view
  3. Data sourcing and aggregation
  4. Intelligent monitoring
  5. Event handling framework
  6. Regulatory rules management
  7. Artificial intelligence/machine learning/robotic process automation

What are the benefits of perpetual KYC?

Moving to perpetual KYC ultimately delivers a materially improved client experience with significant operational benefits arising from reduction in costs and analyst workload. Specifically, the volume of data requested from clients substantially reduces while only material data changes and triggers drive a customer review.

By really getting to grips with the risk each customer presents, perpetual KYC enables improved regulatory compliance through better risk identification. It also creates new/expanded revenue streams by redeploying human resources more effectively and achieving a better understanding of changing client circumstances.

How can perpetual KYC be achieved?

Napier’s Client Activity Review provides the missing piece of the puzzle to achieve perpetual KYC. It sits as a horizontal layer above existing tech and solutions, including all those from third parties. The Client Activity Review aggregates data from transaction monitoring, screening, KYC and many other sources to enable a rich, real-time view of customer activity.

Make no mistake, it’s certainly not easy to achieve perpetual KYC. There are likely to be challenges along the way, but the benefits of this nirvana state will make the effort more than worthwhile.

Discover Client Activity Review

To learn more about how Napier can help move your organisation to perpetual KYC, download our latest eBook, Client Activity Review: The Missing Link between KYC and AML.

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