Financial crime assessment with perpetual KYC oversight

Economic crime costs have escalated to an estimated £290* billion annually. Compounding this issue, billions are believed to be laundered through the UK finance system every week. And that’s why there’s a renewed focus on Know Your Customer (KYC)—specifically continuously monitoring it. 

Knowing your customers is crucial for financial institutions to comply with regulations and manage risks like money laundering and terrorism financing. Traditionally, KYC involves verifying customer identities and reviewing information periodically (ranging from 1-5 years depending on the risk assessment level).

However, this approach has limitations in today's digitally driven economy, with instant transactions and constantly evolving financial crime prevention techniques.  

So, we’re dedicating this blog to understanding the power of perpetual KYC monitoring and sharing best practices.

The shift to perpetual KYC monitoring

Unlike traditional periodic reviews, perpetual KYC provides real-time monitoring of customer profiles and activities. This allows institutions to quickly detect and respond to potential risks, as they happen.

Essentially, perpetual monitoring transforms KYC from a static checklist into an ongoing process. As customer interactions spread across digital platforms, maintaining constant vigilance over their information is critical for managing risks effectively—and adhering to regulations.

Several key drivers are propelling this innovative approach's adoption:

1. Changing regulations: Regulators globally are intensifying anti-money laundering (AML) and counter-terrorist financing (CTF) enforcement, calling for more rigorous ongoing monitoring to combat increasingly sophisticated financial crimes that periodic reviews can miss.

2. Technology advances: Digital tools like AI, machine learning, and blockchain enable automating and enhancing KYC processes. They can quickly analyse huge data volumes, detect patterns, and flag issues with minimal manual effort, boosting efficiency and effectiveness.  

3. Transparency demands: As financial systems become globally connected, regulators demand greater transparency around transactions. Perpetual monitoring ensures customer information is always current, aiding financial crime prevention.

4. Customer experience: Customers now expect smooth, fast interactions including during KYC. Perpetual monitoring reduces repetitive documentation requests, improving the experience.

These drivers highlight that perpetual KYC monitoring is a strategic necessity for financial institutions seeking effective risk mitigation, regulatory compliance, and meeting modern customer expectations in an increasingly digital landscape.

🔦Spotlight: Technology enablers in KYC monitoring

The leap to perpetual KYC monitoring is enabled through advancements in AI, machine learning, and blockchain technology.

AI and machine learning offer sophisticated analytical capabilities to sift through vast data and identify customer risk patterns and anomalies in real time. These technologies automate decision-making, reducing the time and resources needed for manual reviews. For instance, AI can interpret changes in customer behavior or finances by analysing digital footprints like transactions and social media activity, allowing prompt risk profile updates without human intervention.

Blockchain provides a secure, decentralised ledger ideal for maintaining verified customer data accessible to authorised parties, eliminating repeated checks. The KYC Chain platform demonstrates blockchain facilitating seamless, secure KYC processes.  

Integrating AI's analytics power, machine learning's adaptive capabilities, and blockchain's secure data storage enables robust perpetual KYC frameworks. Financial institutions globally are actively implementing these technologies for compliance, security, and customer satisfaction through continuous monitoring.

Benefits of perpetual KYC monitoring

Perpetual KYC monitoring offers multifaceted benefits for financial institutions, regulators, and the overall financial system, aligning with digital demands.

For financial institutions:

✅Simplified regulatory compliance by maintaining current profiles

✅Improved risk management via early irregular activity detection

✅Enhanced customer experience by streamlining processes

✅Saving significant costs in customer outreach programmes (e.g. reduce telephone calls and correspondence to validate data accuracy) and consequent management (e.g. false positive blocking cards for money laundering concerns)... The cost savings are amplified for Know your Business (KYB) use cases.

For regulators and the financial system:

✅Strengthened AML efforts with accurate, timely threat identification

✅Financial crime prevention through suspicious activity reporting

✅Increased integrity and public trust from transparent data

✅Potential global standardisation for cross-border collaboration

✅Real-time checks on KYC assessments (four years is too long to detect financial crime)

Overall, perpetual monitoring is essential to providing efficiency, security, and responsiveness – spanning compliance, risk management, and customer service.

How to move to perpetual KYC oversight

Implementing perpetual KYC comes with challenges spanning technological, operational, and regulatory. Let’s look at them in more detail and the best practices for overcoming them. We’ve interviewed financial crime consultant, Ashley Beldham, who has spent many years consulting with the banks. Here’s his insight into how leading institutions are managing this: 

Data privacy concerns 🔐

Challenge: Continuously collecting and analysing customer data for perpetual KYC raises privacy concerns. Following strict data protection laws is crucial for maintaining customer trust and regulatory compliance.

Mitigation: Put robust data governance policies in place to comply with international data laws. Use techniques like data encryption, anonymising sensitive information, and getting customer consent for data use. Regular audits and compliance checks further strengthens data privacy standards, guarding against potential breaches that financial criminals could exploit.

Lack of data transparency

Challenge: Perpetual monitoring requires the most current customer data to identify financial crime, right as it happens.

Mitigation: With data benchmarking, you can assess the entire data provider market to ensure you have the most comprehensive data, provided in real-time for robust financial crime prevention frameworks.

Technological integration issues ⚙

Challenge: Integrating new perpetual KYC and financial crime detection technologies into existing systems is logistically and financially difficult. Ensuring these technologies can scale as financial crime trends and regulations evolve adds complexity.

Mitigation: Take a phased approach to technology integration, starting with pilot projects to test effectiveness and system compatibility. Use cloud software solutions for scalability.

Old data ⏮

Challenge: Banks operate much of their current infrastructure in data silos which leads to data inaccuracies and conflicting data. Of course, this hinders the ability to spot financial crime–as well as having a detrimental impact on customer outcomes.

Mitigation: Real-time data enables a more customer-centric process as it allows for data sharing across the economic crime divisions.

Operational changes 🔁

Challenge: Shifting to continuous KYC processes for financial crime prevention requires overhauling operations. Training staff on new systems while managing potential resistance to change is vital.

Mitigation: Have a solid change management plan with extensive staff training and clear communication on the benefits of improved financial crime prevention. Leadership must champion these changes to embed new security measures.

Regulatory requirements 🥇

Challenge: Financial crime and regulations constantly evolve, so perpetual KYC systems must be flexible and frequently updated to remain compliant. Vigilant monitoring is needed.

Mitigation: Establish a compliance team dedicated to tracking regulatory changes and financial crime trends to stay ahead of threats while meeting global standards. Actively engage with regulators and participate in industry forums for insights.

Cost implications 💸

Challenge: Setting up and maintaining advanced perpetual KYC systems for financial crime prevention can be costly in the short term – requiring investments in technology, training, and process changes – but can save on significant losses.

Mitigation: Conduct cost-benefit analyses projecting long-term savings from reduced losses and penalties from financial crime. Consider "technology-as-a-service" models for cost-effective access to the latest anti-money laundering technology.

To sum up: Moving to perpetual KYC monitoring is a strategic defense against financial crime–balancing technology, operations, regulations, and finances. While challenges exist, the potential benefits of improved security, compliance, and customer trust are significant. 

Key takeaways: Moving to perpetual KYC oversight

By transitioning from traditional, periodic reviews to a continuous, real-time monitoring system, financial institutions are better equipped to combat financial crime and adhere to regulatory requirements.

However, the shift to perpetual KYC faces challenges. Data privacy concerns, technological integration hurdles, operational changes, evolving regulatory compliance needs, and cost implications are among the obstacles institutions must navigate. Overcoming these requires a strategic approach – adopting best practices such as choosing the right technology partners, conducting comprehensive staff training, updating internal policies, and maintaining a customer-centric focus.

Despite all this, the adoption of perpetual KYC monitoring is more than just a compliance requirement; it presents a strategic opportunity. Financial institutions can enhance operational efficiency, strengthen risk management practices, and build deeper, more trusting relationships with their customers. What’s more, this proactive approach will not only safeguard against financial crimes but also contribute to a more stable, transparent, and trustworthy financial ecosystem.

Sources: https://hansard.parliament.uk/commons/2022-07-07/debates/D08E9A46-5BA8-4DA8-8E29-025C312722AE/EconomicCrimeLawEnforcement