pKYC: Can we really put fraud checks on autopilot?

In 2023 alone, fines issued by the FCA for AML breaches exceeded an estimated £53 million. Such a breathtakingly large number suggests that maintaining a robust, compliant fraud defence has become an economic and moral priority.

In this context, the shift to Perpetual KYC (pKYC) has arrived not a moment too early. But how exactly does pKYC improve Finance’s risk stance? And is this new, automated approach to navigating the Know Your Customer (KYC) process suitable for fraud prevention?

Here, we explain the advantages of pKYC and how it can be strategically leveraged fraud prevention.

• Understanding pKYC: the advantage of automation [Skip ahead]
• How does pKYC work differently to KYC? [Skip ahead]
• What makes Perpetual KYC more effectual? [Skip ahead]
• Why pKYC should be your co-pilot, not an autopilot [Skip ahead]

Understanding pKYC: the advantage of automation

In essence, pKYC is the new best practice for KYC. It replaces periodical due diligence checks with an automated, events-driven way of monitoring, updating, and risk-assessing customer information.

The FCA’s KYC and AML regulations demand that Finance organisations understand the risk levels posed by customers via intermittent personal and financial due diligence checks. But without a continuous view of customer activity, this is virtually impossible, and fraud has ample opportunity to multiply.

pKYC, however, provides FSPs with a clear, accurate understanding of customers at any one time, thus preventing fraud events from going unchecked.

How does pKYC work differently to KYC?

pKYC processes differ from traditional KYC processes significantly. pKYC is centred on as-they-happen events and automation, whereas KYC is essentially periodic due diligence. When compared side by side:

• KYC checks, spanning both fixed (e.g., ID, address, tax eligibility, PEP status) and behavioural data (e.g., foreign/domestic transfers, source of funds, cash deposits,) are carried out prior to onboarding and repeated every one, three or five years, dependent on the initial level of customer risk identified.
  
• pKYC leverages technology to continuously monitor customer data from multiple authoritative sources – automatically updating customer profiles based on real time “events” and assigning a risk score that triggers and prioritises manual checks.

What makes Perpetual KYC more effective?

pKYC processes impart a precise understanding of a customer’s circumstances. With insight of this nature, financial services organisations are less likely to overlook financial crime and fraud scenarios such as:

• Important updates to PEP and sanctions lists.
• Money mule ‘red flag’ behaviour.
• Accounts set up legitimately which subsequently show evidence of APP scam operations.

Replacing periodic reviews with a perpetual events-driven approach comes with major efficiency benefits, too. These include enabling low priority cases to be ‘machine managed’ while investigators focus on priority cases, and reducing the multi-million £ burden of review cycles.

Why pKYC should be your co-pilot, not an autopilot

pKYC has been described KYC on autopilot. Although the fraud prevention benefits of an events-driven approach are clear, humans are needed to ensure automation-supported processes remain ethical, compliant and effective. For example:

• A robust on-boarding process is still essential; the initial screening of individuals and businesses provides the foundation on which pKYC solutions are built.
  
  
• Customer interaction points must also be continually monitored to enrich the centralised customer profile and keep atop of evolving fraud behaviours.
  
  
• It is advisable that screening and subsequent pKYC monitoring, be carried out using syndicated data from multiple authoritative sources to ensure that bias and blind spots are not present. Not doing so could make pKYC processes more susceptible to certain types of frauds being missed - synthetic ID frauds or ‘hidden’ Ultimate Beneficial Owners are good examples.

Getting started with pKYC

Automated pKYC solutions can be set up in many ways. From flagging vulnerable customers as part of financial inclusion strategies, to ensuring that friction-right services and fraud mitigation happily co-exist. Whatever the use cases, the benefit of real-time risk visibility is universal.

Do you intend to progress pKYC in the coming year? Get in touch with a Fraud Consultant to learn about strategies and solutions that can help you achieve your objectives. Arrange a call back at your convenience here.