August 2021 Event: Digital KYC

Updated: Nov 9, 2021



On August 25, 2021 the ACAMS Carolinas Chapter hosted a session on “Digital KYC.” Board member and Senior Director, AML Compliance Officer at Ally Invest, Cheryl Thompson moderated a panelist of industry experts:

  • David Chenkin, Managing Partner | Zeichner Ellman & Krause LLP

  • Sue Devine, Strategic Account Director | Alloy

  • Patrick Sheehan, Head of Americas | Fenergo

  • Scott Werner, Senior Expert | McKinsey & Company

Scott Werner from McKinsey & Company began the discussion by sharing his views on what “digital” KYC is. He defined it as “any process in the KYC lifecycle that is facilitated through digital means.” The digital lifecycle starts with customer identification and verification, name screening (sanctions, PEP, negative news), risk-based due diligence (CDD/EDD), customer risk rating, and continues with a trigger-based KYC refresh as part of a calendar cycle (visual below).

Cheryl commented on her experience working for a digital bank and the various things that can be accomplished digitally in contrast to working for a traditional bank. She asked the panelists to discuss what information can be collected digitally and what banks do with that information. Patrick Sheehan from Fenergo pointed out that digital KYC and capabilities are becoming “table stakes” for financial institutions because clients expect a digital way of doing business and that COVID-19 has only accelerated consumer expectations. He noted the differences between onboarding individual clients verses the time and cost of onboarding a commercial client and the nuances that exist between the two types of clients and all that has to be orchestrated (data, systems work flow) to successfully execute KYC.

Sue Devine from Alloy expanded upon Patrick’s comments and emphasized that by speeding up the onboarding process through a digital experience, banks can capitalize on that time saved elsewhere in the organization. She talked about the use of client information (SSN, DOB, address, email, phone number, IP address, behavior – how client entered data) at onboarding to identify identity anomalies or fraud. As opposed to looking at each individual data element, the information can also be looked at holistically. She expanded upon the concept of “holistic” digital KYC (using a combination of the data to determine unusual clients) and the benefits of looking at the entirety of the relationship from onboarding throughout the client lifecycle. Scott noted the benefits of digital KYC/technologies and the opportunity for analysists to be more risk focused and concentrate on higher value activities, as opposed to burdensome manual processes.


Cheryl asked David Chenkin from Zeichner Ellman & Krause LLP to provide his thoughts on what regulators expect banks to do with digital client information and what does he think they are looking for. David gave his perspective from a legal lens and highlighted the importance of having a solid explanation for how you go about digital KYC and why. He stated that if banks have client information but they can’t see it because of technology challenges, difficulty integrating systems or system navigation challenges, there is always the risk that questions might be raised. This is especially true if something goes wrong with a client because things are always magnified. Auditors or regulators could always come back and ask why the bank didn’t know, when it had the information at its fingertips.


David referenced the 2018 joint statement and support by regulators for banks to innovate and invest in technology solutions as the way to go, instead of manual processes. Banks may be faced with tension between old processes and new, and getting buy-in from regulators and audit when switching over or making changes. He stressed the importance of knowing what you are doing and why you are doing it. He stated that banks need to recognize that “digitization is its own language” and that it may require additional explanation for those that are not familiar, so they can understand and get comfortable with what’s happening. David also gave his “back to the future” speech:


You want to think today, can I justify this later on. Were the actions you took justifiable and did you make a thoughtful/reasonable choice and did you document it?


Cheryl wrapped up the conversation by asking panelists what the future holds and what do they think the AML Act of 2020 will have on digital KYC. Scott highlighted the costs of digitization and that innovation can be a competitive advantage. The benefit of digital KYC will be to zero in on opportunities to expand offering of products and services to clients. He stated there may be an opportunity to “bank the unbanked” because banks will understand clients better. Rather than being a cost center, banks might consider being a resource to offer more services to clients to help them meet their financial needs. Scott said it is the “vision to stop and think – what else can I do with this data?” He also commented that there will likely be no regulatory relief related to the collection of beneficial ownership stemming from new regulation from the AML Act of 2020.


Patrick highlighted the importance of data quality (“crap in, is crap out”), onboarding maintenance, evolution of data reuse, the client refresh journey that must occur as banks continue to digitize. He stated that he thinks banks are headed toward the practice of “perpetual KYC” verses a periodic KYC refresh. Additionally, Sue noted that the change of a client’s personally identifiable information (PII) is something that banks might also consider utilizing and leveraging. David ended the discussion by saying, “Ten years from now, we are going to look back on this conversation and say it was like the fax machine.” This statement speaks volumes to the speed of technology and how things have evolved rapidly since the invention of the fax machine.


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