Customer Due Diligence: the Process and It’s Types

What are Customer Due Diligence and Enhanced Due Diligence?

CDD and its types
Customer Due Diligence or CDD, is the process where relevant information about the customer is collected and evaluated for any potential risk for the organization or money laundering/terrorist financing activities. CDD is essential for KYC, and although these processes differ around the globe, Customer Due Diligence usually supposes identifying your customer and knowing their activities. Later, customer’s risk profile is assessed to be followed by basic Customer Due Diligence, Enhanced Due Diligenge or Simplified Due Diligence.

Required data
CDD starts from obtaining information about the customer. The following points should be included:

  1. Full name
  2. Residential address mailing
  3. Contact numbers, email addresses
  4. Place of birth, date of birth
  5. Gender
  6. Marital status
  7. Nationality
  8. Government-issued identification number
  9. Government-issued tax identification number
  10. Occupation
  11. Specimen signature

Name screening
Name screening is the next stage of performing CDD. Customer data is checked via name-screening databases to evaluate the risk category of the customer. In other words, it is decided if customer due diligence checks should remain standard or be changed to Enhanced Due Diligence.

Enhanced Due Diligence
Enhanced Due Diligence, or EDD takes place where the customer is assessed to be at a heightened risk to the company. This higher level of due diligence is required to minimize the risks. A high-risk situation generally occurs where there is an increased opportunity for money laundering or terrorist financing through the service or product you are providing. The additional due diligence could take many forms from gathering additional information to verifying the customer’s identity or source of income. Part of the EDD process is to obtain senior management approval before beginning a relationship and to establish the source of funds. Enhanced Due Diligence is also applied to beneficial owners of companies.

Simplified Due Diligence
However, customers do not always pose a high risk on the organization, sometimes simplified due diligence is enough. When there is less probability that provided services or customer may become involved in money laundering or terrorist financing. Simplified due diligence is the lowest level of due diligence that can be completed on a customer. Verifying your customer’s identity is often not required unlike in standard or enhanced due diligence.

Ongoing checks
Customer Due Diligence continues after establishing business relationships, as clients’ risk profiles may change after a while. Financial institutions scrutinize clients’ transactions making sure they are legitimate and that their risk-rating of the customer stays the same. It is also necessary to ensure that the documents and other data collected in CDD process are up-to-date.

Given the number of checks, it is almost impossible to make them manually. Manual checks mean slow and more expensive customer onboarding, which is not what companies need these days. However, with modern software, CDD check can be made even in 30 seconds, AML check takes at least 2 minutes.

KYC/AML solutions:

  • automatically check a customer’s background against various databases and sanction lists.
  • make onboarding process easier.
  • helps you respond faster to any changes in regulatory laws.

Sum&Substance complete toolkit for KYC/AML checks will help you protect your business from financial crimes.

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Customer Due Diligence: the Process and It's Types
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