October 19, 2023
5 min read

The Pros and Cons of Continuous KYC and Periodic Risk Monitoring

Best Practices and Challenges of C-KYC

In the ever-evolving world of finance, compliance with regulations is paramount. Financial institutions must remain vigilant in their efforts to prevent money laundering, terrorist financing, and other illicit activities. One of the essential tools in this fight is the implementation of Know Your Customer (KYC) processes. Two primary approaches to KYC have emerged in recent years: continuous KYC and periodic risk monitoring. Both have their unique advantages and drawbacks, so let's dive into the pros and cons of continuous KYC and periodic risk monitoring.

Continuous KYC is a proactive approach that involves ongoing monitoring of customer data, behaviour, and transactions. The main advantage of continuous KYC is that it allows financial institutions to identify and address potential risks in real-time. By constantly updating and verifying customer information, continuous KYC reduces the likelihood of fraudulent activities and allows financial institutions to maintain an up-to-date understanding of their customer base. Additionally, continuous KYC is more effective in meeting regulatory requirements, as it demonstrates a higher level of commitment to compliance.

However, continuous KYC is not without its drawbacks. The most significant disadvantage of continuous KYC is the increased cost and effort required for implementation. Due to the ongoing nature of the process, financial institutions may need to allocate more resources, both human and technological, to ensure compliance. This can be particularly challenging for smaller institutions with limited resources. Moreover, continuous KYC may raise privacy concerns for customers, as they may be apprehensive about sharing personal information on an ongoing basis.

Best Practices and Challenges of Periodic Risk Monitoring

Periodic risk monitoring, on the other hand, is a more reactive approach. Instead of continuous monitoring, customer data is reviewed and updated at predetermined intervals or when specific triggers occur, such as a significant change in transaction behavior. One of the main advantages of periodic risk monitoring is its cost-effectiveness. By only reviewing customer data at set intervals, financial institutions can allocate resources more efficiently and reduce operational costs.

However, periodic risk monitoring has its share of disadvantages. The primary drawback is that it may not be as effective in identifying and mitigating potential risks compared to continuous KYC. By only reviewing customer data periodically, financial institutions may miss red flags or be slower to respond to potential issues. This could result in higher exposure to risk and possible regulatory penalties. Additionally, periodic risk monitoring may not be as adaptable to changes in regulations, as it relies on fixed intervals rather than real-time monitoring.

Finding the right balance between Continuous KYC & Periodic Risk Monitoring

As concerns about privacy continue to rise, it's worth mentioning a novel solution that strikes a balance between KYC compliance and individual privacy: Togggle. Togggle is a decentralized KYC solution that empowers users to own and control their personal data. By utilizing blockchain technology, Togggle ensures that customer data remains secure and accessible only to authorized parties. This innovative approach to KYC can help alleviate privacy concerns while still allowing financial institutions to meet regulatory requirements.

Both continuous KYC and periodic risk monitoring have their pros and cons. Continuous KYC offers more effective risk identification and mitigation but can be costly and raise privacy concerns. Periodic risk monitoring is more cost-effective but may not be as efficient in identifying and addressing potential risks. Ultimately, financial institutions must consider their unique circumstances and weigh the advantages and drawbacks of each approach to determine the best KYC strategy. With the emergence of solutions like Togggle, the future of KYC may involve a combination of both approaches, providing a balance between compliance, cost-effectiveness, and privacy.

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