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Perpetual know your customer: A new approach to addressing customer due diligence
Journal of Financial Compliance,
5
(4),
307-314
(2022)
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
The full article is available to subscribers to the journal.
Author's Biography
Hnery Balani DBA is a seasoned financial services executive and academic with over 25 years’ financial services experience in the regulatory technology and consulting industries. In his current role as Global Head of Industry & Regulatory Affairs, he advocates Encompass’s efforts among leading industry analysts and regulatory agencies, raising Encompass’s profile as a leader in addressing financial crime through regulatory technology solutions. In his previous role as Head of Delivery Services & Customer Success, he was responsible for client related delivery activities and ongoing use of the platform. Prior to joining Encompass, in his role as Global Head of Strategic Affairs at Accuity, Dr Balani advised banks, money services businesses and financial technology firms on implementing compliance solutions related to anti-money laundering (AML), Bank Secrecy Act, know your customer (KYC) and OFAC sanctions, interdiction processes and solutions. He also worked closely with regulators, providing guidance on the latest technology solutions affecting KYC & AML, including the impact of blockchain and cryptocurrency. As Head of Innovation, he introduced AML sanction screening solutions for the banking and trade industries. At Accuity, he also provided oversight for Accuity’s Compliance Group that included product management and professional services related to all regulatory compliance solutions. Dr Balani speaks at major regulatory compliance conferences globally. He has advised US government agencies on the operational impact of AML and OFAC regulations in the financial services industry as well as acting as a consultant to several international government agencies, including the IMF and the World Bank. Apart from providing expertise in identifying money laundering through traditional channels, Dr Balani has provided guidance on emerging money laundering channels, including trade finance, crypto currency, real estate and high value assets. He has conducted panel sessions on OFAC with senior US and EU government officials as well as providing input to the development of the fifth EU AML Directive. In his capacity as an academic, Dr Balani lectures on, and publishes research related to, the impact of AML penalties and regulations on banking sector valuations in the US and Europe. He lectures on international management, trade and economics and regulatory compliance, including at Cambridge University and Case Western Reserve Law School, where he instructs compliance officers and regulators in developing effective compliance programmes in the banking sector. Dr Balani also regularly lectures on international management at the Northern Illinois University School of Business. Dr Balani holds a Doctorate in Business Administration from the University of Wisconsin, an MBA from Northern Illinois University and BS in Economics, International Trade and Development from the London School of Economics, University of London.
