Instead of being an expensive chore, checking potential clients' backgrounds can be used for revenue building, argues in a report. It introduces the concept of perpetual KYC, or “pKYC” into the wealth management lexicon.
Perpetual KYC reimagines the know-your-client function, taking it from an activity that occurs irregularly every few years after client onboarding, to an automated trigger-based activity that works in real time.
“This shift to continuous KYC is an enabler for compliance teams, helping them transition from a purely regulatory business function to becoming a driver of revenue,” the report, entitled Perpetual KYC: Transforming Risk and Compliance, said. The research is based on 60 in-depth interviews with 58 firms, across nine countries.
KYC has traditionally been a manual and time-consuming process for companies, as a well as a technically complex activity. There is evidence that this is changing, and forward-thinking compliance teams are changing their approach to KYC, the report said.
Source: Moody's Analytics
There is plenty of room for improvement. Moody’s research found that 76 per cent of organisations assess the digital sophistication of their own KYC approach as either poor (29 per cent) or mediocre (47 per cent).
The lowest-scoring firms tended to be traditional banks and professional services firms. These are firms that are weighed down with legacy infrastructure and, in some cases, use paper processes during customer onboarding.
However, half of firms – 50 per cent – take an “enlightened” view of KYC and believe it brings the opportunity to improve ROI within their organisation through better customer experience. The report also said that six out of 10 respondents are familiar with the concept of pKYC, and understand that if executed correctly it has the power to be transformational.
“Compliance methods are adjusting to the new global reality, but there is still some way to go before they catch up with this new pace. Rather than just adhering to regulatory requirements, the future of compliance is one where organisations can tailor their KYC to their own risk appetite,” Keith Berry, general manager, Know Your Customer Solutions at Moody's Analytics, said.
"Our research found a strong desire to automate KYC and, although all firms are at different levels of digital sophistication, for half of firms it is an opportunity to bring them closer to their customers. Perpetual KYC is key to transforming risk and compliance, helping compliance teams change their role from purely regulatory to enabling businesses to understand risks and make decisions with confidence,” Berry said.