What is KYC remediation?
KYC remediation is the process of reviewing, updating, and correcting customer due diligence information for existing clients. It typically occurs at periodic intervals, or whenever previous verification processes are determined to be incomplete or inadequate.
Unlike continuous KYC monitoring, which involves ongoing monitoring of customer activity, KYC remediation involves a systematic audit and re-verification of portions of an institution's existing customer base. Remediation may be triggered when a regulator identifies deficiencies in the institution’s KYC process. It may also be necessary when regulatory requirements change, or when an internal audit reveals gaps in customer information.
KYC remediation vs. continuous KYC: What’s the difference?
The distinction between KYC remediation and continuous KYC monitoring is key to understanding when and why remediation may become necessary.
Gabriele Rosati, Sales Manager at Fourthline, describes continuous KYC as an ongoing process that’s embedded into the customer experience. “Once you’ve onboarded a customer, you need to make sure that they keep being compliant on a continuous basis,” he explains. This regular monitoring goes beyond mere identification. An organisation might, for example, want to make sure that a customer’s transactions are in line with their profile and not suspicious. Evaluating these transactions over time is a process known as transaction monitoring, and it’s a key part of anti-money laundering (AML) efforts.
KYC remediation, by contrast, addresses historical deficiencies. "It's more related to how your company has done things in the past,” explains Rosati. “Perhaps something was not done properly, and you unintentionally onboarded a million people in a way that wasn’t compliant. If that’s the case, you need to remediate and re-verify your user base.” This isn’t necessarily a typical example, but it does illustrate how remediation functions as an audit of your existing customer base.
Common triggers for KYC remediation
Several events can trigger the need for KYC remediation. These triggers can be external (e.g., a request from regulators) or internal (e.g., changes in your business’s structure).
Regulatory enforcement is among the most common triggers for remediation. When supervisory authorities identify deficiencies during investigations, they may require organisations to conduct comprehensive reviews of affected customer segments. “Most of the time, we see remediation as a result of regulatory findings,” Rosati observes, though other scenarios can also trigger remediation requirements.
Business acquisitions and mergers are also common triggers. “For example, if a smaller institution has been acquired by another institution, the acquiring company likely wants to make sure that everything is done properly,” explains Rosati. This might lead to a request to re-verify and remediate the user base.
Changes in regulatory frameworks can also necessitate remediation — especially when new requirements demand higher verification standards. This can happen periodically when regulations are updated, but it can also happen when a business decides to operate in different countries or across international borders. For example, if your business has a license in Italy but needs a license in Germany or France, you’ll likely need to migrate your current users base and re-verify them according to a new set of requirements.
The KYC remediation process
KYC remediation generally follows a structured approach that balances regulatory requirements with customer experience considerations. Here, we'll explain the steps of the process.
Risk assessment. Organisations must first identify which customer segments require attention based on risk levels, regulatory guidance, and the severity of identified deficiencies. High-risk customers and those with incomplete documentation typically receive the highest level of attention.
Customer outreach and re-verification. Here, companies generally request updated documentation, conducting Enhanced Due Diligence (EDD) procedures, or performing a complete re-verification of customer identities and risk profiles. The complexity varies significantly based on customer risk levels.
Documentation and record-keeping. This ensures that remediation efforts meet regulatory expectations and provide clear audit trails.
Quality assurance. This process confirms that remediation efforts achieve the intended goal — and that any ongoing deficiencies are appropriately addressed or escalated.
How remediation helps in the fight against money laundering
AML regulations add some specific requirements to KYC remediation that financial institutions must address.
Enhanced Due Diligence requirements often come into play during remediation, especially for higher-risk customers. EDD may include additional screening against sanctions lists, politically exposed person databases, and adverse media sources. “Everything around KYC is done on a risk-based approach,” Rosati emphasises. “If you look at the regulations, you'll see this frequently. Depending on the risk level of the user, you may need to have a different approach.”
Suspicious Activity Reports (SARs) may be required when remediation efforts uncover previously unidentified risks or compliance deficiencies that suggest potential money laundering or terrorist financing activity.
Why the initial KYC process is so important
The most effective approach to managing remediation requirements? Preventing the need for large-scale remediation through robust initial KYC processes.
“If you do things correctly from the start and throughout the customer lifecycle, then remediation may be a rare event,” Rosati explains, highlighting how strong foundational processes reduce remediation risks. “Good initial KYC and continuous KYC will help you avoid some triggers for remediation.”
This isn't to say you’ll be able to avoid KYC remediation entirely. Even organisations with strong KYC practices may face remediation requirements due to evolving regulatory expectations or business changes beyond their direct control. But it makes sense to control what you can.
If you’re ready to build a more robust KYC process, get in touch with a Fourthline expert today.
KYC remediation FAQs
How long does KYC remediation usually take?
KYC remediation timelines can vary based on the scope of deficiencies, the size of the customer base, and regulatory requirements. Simple documentation updates may be completed within weeks, while more comprehensive re-verification programs can stretch over several months or even years.
Can a customer opt out of KYC remediation?
While customers may be reluctant to participate in a remediation process, financial institutions typically have contractual rights to request updated KYC information. Customers who refuse to participate may face account restrictions or closure.
Does KYC remediation guarantee regulatory compliance?
KYC remediation can address deficiencies and bring customer info up to current standards, but ongoing regulatory compliance requires continuous monitoring and periodic updates. Remediation should be considered a foundation for compliance, not a solution on its own.
This article incorporates insights from Gabriele Rosati, Sales Manager at Fourthline. It is for informational purposes only and does not constitute legal advice. Because regulations change frequently, always consult with legal and compliance professionals regarding your (or your business’s) specific circumstances.
