Integrating perpetual KYC (pKYC) into your regulatory compliance roadmap

Gain efficiencies, meet regulatory expectations, and better counter money laundering and terrorist financing.

The know-your-customer (KYC) process is central to the efforts to stamp out money laundering. It’s integral to every stage of an institution’s anti-money-laundering (AML) program and the accuracy of AML efforts have far-reaching consequences.

Failure to identify bad actors can result in enforcement actions by regulators, including large files and reputational nightmares. On the other hand, false positives, and the burdens they place on customers may seriously harm customer relationships, leading to financial losses and further depending reputational damage.

In today’s evolving regulatory environment, traditional KYC practices are no longer sufficient. To keep pace with modern money laundering tactics and rising compliance expectations, financial institutions are now turning to perpetual KYC (pKYC): a continuous, real-time approach to customer due diligence that empowers early detection of risks, enhances operational efficiency, and ensures a state of ongoing compliance.

Understanding perpetual KYC

Traditional KYC frameworks are becoming increasingly inadequate against sophisticated money laundering strategies. As financial institutions navigate this challenging environment, integrating pKYC offers a cutting-edge solution that emphasizes continuous monitoring and real-time insights into customer behavior and risk profiles. 

pKYC is an ongoing process of customer due diligence as opposed to periodic reviews. As a central pillar of AML programs, pKYC represents a drastic shift towards proactive compliance measures that align with modern regulatory scrutiny.

The importance of perpetual KYC 

For financial institutions, the ability to identify and understand customer relationships is crucial. Failure to conduct robust KYC can result in severe repercussions, such as hefty fines and reputational damage, if illicit activities go unnoticed. Regulators like the Financial Crimes Enforcement Network (FinCEN) stress the necessity for institutions to understand the nature and purpose of customer relationships as a foundational component of effective KYC.

Key components of KYC

1. Customer identity verification: essential for establishing a solid foundation for customer relationships.
2. Understanding ultimate beneficial owners (UBOs): particularly important for legal entities to decipher who truly controls an organization.
3. Ongoing monitoring: ensures firms adapt to changes in customer behavior or risk levels.

Challenges with traditional KYC processes

Traditional KYC practices involve infrequent evaluations based on risk ratings – often overlooking shifts in customer risk profiles until the next scheduled review. This static approach can:

• Let high-risk customers be overlooked for a long time.
• Impede timely responses to suspicious activity.
• Weaken financial firms’ view of the true compliance landscape.

A holistic pKYC approach

Implementing pKYC requires a holistic strategy that merges technology with human insight. Here are six essential components for building a robust pKYC program:

1. Clarity and transparency – Employ technologies with decision-making processes that are clearly understood and documented, ensuring regulatory compliance and auditability.
2. Human judgment – Balance technological automation with human oversight to reduce errors – all while fostering thorough compliance.
3. Residual risks – Identify and mitigate potential risks associated with new technology implementations, such as data inaccuracies or biased conclusions.
4. Data management and governance – Implement robust data governance practices to safeguard data integrity and promote accurate risk assessment.
5. Model risk management – Regularly assess and validate compliance and AML models to ensure effectiveness and adherence to regulatory standards.
6. Metrics for demonstrating effectiveness – Establish clear metrics to evaluate how well a pKYC program re-evaluates risk profiles and reduces false positives.

Leveraging modern technologies in KYC

The integration of technologies such as artificial intelligence (AI), machine learning (ML), and cloud computing is pivotal in modernizing KYC processes. These technologies facilitate:

• Continuous monitoring of customer behaviors.
• Real-time alerts for regulatory compliance.
• Enhanced data analytics capabilities to refine customer profiles and risk assessments.

Since pKYC involves a set of technological best practices, institutions should also embrace responsible innovation as endorsed by regulators – making sure the technology they adopt enhances their compliance without sacrificing transparency.

Capgemini’s Top trends 2025: Capital markets report highlights pKYC as a key enabler of proactive compliance. By embracing automation and real-time monitoring, firms can reduce onboarding time and strengthen risk management frameworks.

Implementing perpetual KYC: A strategic pathway 

Transitioning to pKYC requires solid a comprehensive implementation strategy. Here are crucial steps organizations should consider:

1. Define objectives clearly: set specific goals for what pKYC should achieve in terms of compliance and operational efficiency.
2. Engage with stakeholders: ensure buy-in from all levels, including compliance teams, data officers, and IT departments.
3. Evaluate technology needs: conduct a thorough analysis of existing systems and identify gaps that pKYC technologies need to fill.
4. Pilot programs: before a full-scale rollout, test pKYC solutions on a smaller scale to identify potential issues and optimize operations.
5. Train personnel: equip staff with the skills they need to make best use of new technology.
6. Iterate and improve: after implementation, continue to monitor the system’s performance and adjust based on feedback and technological advancements.

Conclusion: The future of KYC in financial services

As the regulatory landscape evolves, the shift toward perpetual KYC will be a cornerstone for compliance excellence. Financial institutions committed to integrating pKYC frameworks will find themselves better equipped to counter money laundering and terrorist-financing vulnerabilities – while also enhancing customer experiences. 

For organizations navigating this transformative landscape, Capgemini and Encompass Corporation can give essential insights and support. 

In this paper, along with Encompass Corporation, we explore how financial institutions can ensure the best possible KYC capabilities:

• Accurate KYC is perpetual KYC: traditional KYC lets customers who move from low to high risk go unnoticed for months or even years. pKYC empowers organizations to recognize and react to suspicious activity as soon as it happens.
• Technology + teams: shifting to pKYC and modern technologies is a must for financial institutions. Technologies like AI, ML, cloud computing, intelligent process automation, and data analytics are only the beginning. An all-out, end-to-end pKYC solution – one that comprises industry best practices and ensures optimal results with minimal cost and disruption – is key.

Read our point of view to unlock the power of pKYC.