What is CDD?
Customer Due Diligence (CDD) refers to identifying and verifying customer details in order to evaluate their risk profiles prior to their onboarding. An essential step in an organization’s Anti-Money Laundering (AML) and Know Your Customers (KYC) compliance process, an adequate due diligence process protects banking systems and financial institutions from money laundering, terrorist financing and other financial crimes.
CDD is also recommended in the AML/CFT guidelines by the Financial Action Task Force (FATF), which says that banks and financial institutions should perform due diligence while dealing with customers and clients, depending on their risk profiles.
What are the steps required for an effective CDD?
- Obtain customer/client information
By identifying and verifying a customer’s data prior to their onboarding, financial institutions can protect themselves against financial crimes at a much earlier stage.
Some information that can be collected from an individual customer at this stage may include:
- Customer name
- Contact details
- Address
- Government-issued identification
While engaging with corporations, the following details would be necessary
- Company name
- Incorporation date
- Address
- Company status
- Key management personnel
- Verify obtained information
Once all required data from customers/clients has been collected, it needs to be verified against sanction lists, PEP lists and other global lists. This is done to identify whether a potential customer/client is associated with any fraudulent activity. Adverse media screening also has to be done to identify possible threats. - Evaluate risk profile
Once a thorough screening of data is done, the risk potential of the customer/client has to be formulated. For low-risk customers, these verification processes would suffice, but for those high-risk customers and clients, Enhanced Due Diligence (EDD) has to be done. - Ongoing CDD
Once a customer/client has been onboarded, an ongoing CDD process has to be maintained to update any changes in detail and identify any potential risks.
Who needs CDD and when?
CDD is mandatory under most AML regulations, as it protects the interest of the banking system and financial institutions. Organisations that deal with customers and clients on a regular basis benefit greatly from a rigid CDD process.
Major industries in the banking and financial services sector, including fintech, cryptocurrency, insurance, telecom as well as real estate and audit firms are required to comply with due diligence norms while dealing with customers.
Banks and financial institutions must perform due diligence in the following scenarios:
- Before onboarding a new customer/client, verify their identity and evaluate their risk profiles
- When a large transaction has been performed
- If a client/customer is suspected of financial crimes
- If inadequate or incorrect information has been provided during the KYC/AML process
uqudo’s Customer Due Diligence (CDD) solutions
With organizations aware of the rising need for a properly implemented due diligence procedure in today’s digital environment, banks and financial institutions have started exploring automated CDD and AML solutions. The large amount of information that has to be evaluated during due diligence makes using software solutions more practical. uqudo’s customised CDD procedure can help identify and mitigate the chances of your company’s association with financial fraudsters.
