In the early 2010s, the financial world was rocked by the revelations of the Panama Papers, exposing the vulnerabilities in traditional Know Your Customer (KYC) processes.
The leak underscored the limitations of periodic reviews and the pressing need for more dynamic compliance mechanisms. In the years which followed, global regulators have significantly tightened AML enforcement. Institutions are no longer evaluated solely on periodic reviews, but also on their ability to detect and act on risk indicators in real time.
And yet, according to Fenergo, in 2022, financial institutions faced $4.2bn in penalties for non-compliance with anti-money laundering (AML) regulations, which include KYC failures.
Fast forward to today, and Capgemini has introduced what could be a game changer for financial services: the perpetual Know Your Customer (pKYC) sandbox. This new platform, announced on April 30, offers financial institutions a secure environment to transition from static KYC processes to continuous, event-driven compliance frameworks.
Traditional KYC methods involve periodic reviews, often annually or triennially, which can leave significant gaps in monitoring customer activities. Meanwhile, pKYC leverages real-time data to continuously assess customer risk profiles, ensuring that any material changes are promptly identified and addressed.
Capgemini’s sandbox has been designed with modularity and flexibility at its core, allowing integration with various technologies and platforms. Key features include:
- A secure testing environment where organisations can pilot advanced KYC capabilities without risking sensitive data.
- Real-time visualisation capabilities, allowing firms to observe pKYC processes in action.
- Regulatory alignment whereby the sandbox helps to demonstrate compliance readiness to regulators.
Implications for the payments and iGaming sectors
The payments industry, characterised by rapid transactions and evolving customer behaviours, could stand to benefit immensely from pKYC. Real-time compliance ensures that anomalies are detected promptly, reducing fraud and enhancing customer trust.
With the growing use of digital assets, including cryptocurrency and stablecoins, the need for new platforms to ensure KYC compliance has never been greater. The decentralised and pseudonymous nature of crypto makes it fertile ground for illicit activities, including money laundering, terrorism financing, and fraud.
Regulators globally are ramping up scrutiny — from MiCA in the EU to the Travel Rule in the US pKYC can play a critical role by not only linking wallets to identities and flagging high-risk transactions instantly, but also continuously screening wallet activity against updated risk indicators and blockchain analytics. It should also enable crypto exchanges and custodians to comply with evolving regulatory expectations without disrupting user experience.
Similarly, the iGaming sector, often under stringent regulatory scrutiny, can leverage pKYC to maintain continuous compliance, ensuring player activities are monitored effectively and responsibly.
Nevertheless, while the advantages of pKYC are evident, transitioning to such a system is no mean feat. Institutions will need to invest in high-quality data management, ensure integration across disparate systems, and foster a culture that embraces continuous compliance.
