Electronic IDentification, which offers KYC and AML software, has released a report exploring the role of CDD in banking.
CDD allows financial institutions, businesses and other organisations to collate information about their customers. With this, they can identify and mitigate risks, including money laundering, terrorism financing and other illicit activities.
The process normally involves collecting and verifying information about a customer’s identity and financial and business activities. It also includes the ongoing monitoring of the customer’s activities to identify any changes or red flags that could indicate the risk of illicit activity.
During these checks, the company will examine identification documents, obtain information about the customer’s business and financial history, review public records and more.
A typical CDD checklist is, identify the customer, verify their identity, assess the risk profile, collect and verify additional information, monitor customer activities and report suspicious activity.
CDD is similar to the know your customer (KYC) process and are often used interchangeably. However, they have two distinct differences, the report stated. For example, KYC is focused on the initial onboarding of a new customer, while CDD involves ongoing monitoring and assessment of a customer’s activities.
There are three core types of CDD that firms might implement. The first is standard customer or client due diligence, which refers to a basic level of information organisations must collect and verify about their customers. A step up from this is enhanced customer due diligence. This is a deeper review of a customer’s activities and risk profile, which is often needed for higher-risk customers or transactions involving large sums of money.
The final method is ongoing CDD. This is a continuous monitoring of a customer’s activities to identify any changes or red flags that appear during the customer lifecycle.
Banks and financial institutions are required by law to implement CDD processes. However, Electronic IDentification has urged any organisation that is at risk of being used to facilitate money laundering or other illicit activities should implement CDD processes. This includes companies in real estate, law, gaming and non-profits.
Electronic IDentification offered three key benefits for CDD in banking. The first is reducing the risk of financial crimes as they can accurately visualise their customers. The next is to enhance regulation and compliance. Not only do these processes prevent financial crime, but show the firm’s dedication to stopping illegal activity, boosting their reputation with customers, partners and regulators.
Finally, CDD can improve the firm’s risk management, protecting itself and customers.
It concluded, “These benefits can be achieved with the proper customer due diligence solutions. These customer due diligence solutions or software, such as automatic digital onboarding, go beyond compliance and help companies achieve the best operational excellence.”
Read the full report here.
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