As the regulatory compliance landscape becomes more demanding, it is high time for KYC operations to comply and gradually evolve in a sustainable manner. In doing so, create value-add for the institution that goes beyond just meeting regulators’ expectations worldwide. This may include an enhanced customer experience with the use of digitisation as a way to speed up the compliance process for a customer.
KYC is no longer a reactive measure to meet regulatory mandates and audit findings but a holistic approach to creating sustainable value for institutions.
Financial institutions in Mauritius generally perform a Periodic KYC exercise, and this comes with certain challenges. It is now time to transition to Perpetual KYC and this will accrue benefits and definitely represent a significant improvement and substitute to the current method that is starting to get old. This will also be the right stepping stone to the longer-term vision of introducing a Central KYC (C-KYC) Registry in Mauritius.
Our view is that a robust C-KYC will not only provide an optimised customer experience, but also eliminate fallacies of standalone KYC processes used by financial institutions. With a long-term strategic C-KYC approach, we also believe Mauritius will strengthen the country’s customer due diligence process and have a more rigorous AML/CFT procedure in place, through a standardised approach across all the financial institutions governed by multiple regulators.
Periodic KYC reviews often add burden to the compliance journey as the financial institutions seek to complete the KYC process in a cost efficient manner, which, at times, may lead to inaccuracies and human dependencies.
These limitations have given rise to a need for a transition and C-KYC may be the ideal and sustainable approach.
But, before we get to it, let’s dive into what is Periodic KYC Review.
Periodic KYC is an extremely complex review procedure which involves the customer submitting the latest proof of identity and address to the bank or financial institution. This is usually done when a customer opens an account in any financial institution and there is a periodic review and update of submitted documents. The periodicity of this review process is defined and documented in the KYC policy of the financial insitution.
However, Periodic KYC review often comes with some challenges.
Work productivity of compliance teams is lost because of information asymmetry.
Manual intervention in the process imposes risks of oversight leading to increased error rates.
In person verification of documents for multiple relationships with the same Bank/ FIs, are not welcomed by customers.
Repeated reminders to produce mandatory documents often leads to loss of customer interest
Resource costs associated with customer on-boarding and periodic KYC reviews have increased exponentially.
The loss of customers due to cumbersome processes also has a financial impact on the Bank/ FIs.
Banks/ FIs face a lot of challenges while selecting the right technology tool for periodic reviews.
The absence of a central repository also adds to the problem as aggregation of information by Bank/FI is time consuming even with usage of technology tools.
As it stands, there is nothing wrong with financial institutions doing periodic review as part of their KYC process. However, to create a more holistic approach and overcome the challenges across the process, there is a need for financial institutions to create an integrated ecosystem where units communicate with each other and data is shared within privacy parameters.
Banks/FIs should think from a customer’s perspective and align their KYC policy, ant this should translate to reduced KYC costs
Operational procedures need to be aligned to support the execution of a defined set of processes more efficiently and effectively
Customer information should be organised and structured under a federated approach to reduce data complexity and achieve rationalised data
Operational procedures need to be aligned to support the execution of a defined set of processes more efficiently and effectively.
Advanced workflow technology is estimated to be 30% - 50% faster and can save up to 75% of resource cost to complete the process.
Impact of all the changes in the procedures should be assessed to determine the success rate and also to identify, further improvement opportunities.
Most importantly, adopting a Perpetual KYC provides a short term benefit for the financial institutions on different levels including customer experience, decreasing friction, and optimising the compliance journey with “clean information”.
However, with Perpetual KYC being an almost isolated process, it will still be a question for financial institutions to provide a seamless experience to the customers.
We believe that the the long-term vision should be the introduction of C-KYC. This will furthermore help better meet the AML and CFT recommendations from FATF and the European Commission.
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A Central KYC Registry, as presented by PwC Mauritius in August 2020, is a forward-looking step to eradicate the information asymmetry of customer information within the financial services ecosystem, and to ensure that the information obtained by the financial services entity is accurate, updated and relevant.
It seeks to eliminate the fallacies of a standalone KYC process used by financial institutions. It also aims at providing an enhanced customer experience by eliminating the need for producing the same set of documentation and going through the same procedures across multiple FIs over what is often a lengthy process.
FIs can stay focused on their core business of serving their customers.
Reduced time for customer onboarding as the process can be completed by pinging the Central Registry, resulting in an enhanced customer experience for the FI.
C-KYC enables inter-usability of KYC records thereby infusing transparency and a unified process.
Standardised output meeting all relevant regulatory requirements.
C-KYC enables mutualisation of costs across multiple FIs, thereby reducing Cost of Acquisition.
Membership and usage based fees, with low cost of ongoing maintenance and support.
Optimised use of technology to enable faster data processing and reduced turnaround time.
Data is securely stored resulting into the highest standards of data security and privacy.
Close monitoring against politically exposed person (PEP) or sanction lists.
Periodic delta screening against negative news.
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Associate Director, Consulting
Jean-Pierre Young, ACA, CIA
Advisory Leader, PwC Mauritius
Tel: +230 404 5028
Partner, Consulting, PwC Mauritius
Tel: +230 404 5015
Senior Manager, Clients and Markets Development, PwC Mauritius
Tel: +230 4045029