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Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is a process that financial institutions and businesses perform to verify the identity of their customers and assess the risks associated with their business relationships. CDD aims to identify the customer and understand their business activities to prevent money laundering, terrorist financing and other financial crimes.

Importance of customer due diligence

CDD is essential for financial institutions and businesses to comply with legal and regulatory requirements. It helps to identify and mitigate risks associated with money laundering, terrorist financing and other criminal activities. CDD protects financial institutions and businesses from reputational and financial risks. Non-compliance with CDD can lead to severe legal consequences, fines and reputational damage.

Different types of CDD

  1. Simplified Due Diligence (SDD): This type of CDD is applicable for low-risk customers or transactions. Only basic identity information is verified, and no additional risk assessment is required.
  2. Basic Due Diligence (BDD): This CDD type is applicable for customers or transactions with moderate risk. Identity information is verified, and additional risk factors are assessed.
  3. Enhanced Due Diligence (EDD): It is applicable for high-risk customers or transactions. Identity information is verified, and an in-depth risk assessment is performed, including the source of funds and the purpose of transaction.

CDD applied in banks

Banks are required to conduct CDD for all customers, including individuals, businesses and politically exposed persons (PEPs). It is applied when opening a new account, establishing a new business relationship, or carrying out a significant transaction. Banks must periodically review and update their CDD information.

What does the typical CDD process look like?

The CDD process involves several steps, including identifying the customer, verifying their identity, and assessing the risks associated with their business activities. The typical CDD process includes the following steps:

  • Collecting basic identity information from the customer
  • Verifying the customer’s identity using reliable sources such as government-issued identification documents or commercial databases
  • Assessing the risk associated with the customer’s business activities, including the source of funds, purpose of the transaction, and geographic location
  • Conducting ongoing monitoring of the customer’s business activities to detect any suspicious transactions

Customer due diligence solutions

CDD solutions help companies manage risk and comply with regulations by verifying the identity and assessing the risk of potential customers. These solutions involve verifying various forms of identification, screening customers against watchlists and databases, and assessing their risk levels.

Customer due diligence solutions are increasingly powered by advanced technologies such as machine learning and artificial intelligence. This enables more efficient and accurate identification risk assessment. Effective CDD solutions can help companies protect themselves from reputational damage, regulatory fines and legal penalties. Today CDD is becoming an essential part of compliance programs across a range of industries, including banking, finance and healthcare.

What is customer due diligence?

Customer due diligence (CDD) is the process of verifying the identity of customers and assessing the risks associated with their business relationships to prevent financial crimes.

How do you conduct CDD?

CDD is conducted by collecting basic identity information from customers, verifying their identity using reliable sources, assessing risk factors, and conducting ongoing monitoring.

What are four customer due diligence requirements?

Four customer due diligence requirements include identifying the customer and verifying their identity, assessing and understanding the nature of the customer's business relationship, conducting ongoing monitoring, and reporting any suspicious activity.

What is the difference between KYC and CDD?

KYC focuses on collecting customer identification information, while CDD involves additional risk assessments and monitoring of customer activities.

What are the three types of CDD?

The three types of CDD include simplified due diligence (SDD), basic due diligence (BDD), and enhanced due diligence (EDD).

Who is responsible for customer due diligence?

Financial institutions and businesses are responsible for conducting customer due diligence to comply with legal and regulatory requirements and prevent financial crimes.