All companies check their candidates’ background and capabilities before employing them. Similarly, companies belonging to the financial services (FinServ) sector perform due diligence for prospective customers before opening their accounts or offering them a service. As the digital advancements have ushered in new types of financial crimes, regulators are resorting to customer due diligence (CDD) services to tighten their anti-money laundering (AML) and CDD regulations. Here is a comprehensive guide to the seamless CDD process.
What is CDD?
CDD involves various processes that help identify customers, confirm their identity and monitor their behavior throughout the relationship. Financial institutions and related companies use CDD in line with AML regulations to prevent financial crimes and money laundering. CDD tries to identify suspicious customer activities and report them to the relevant authorities. It weeds out fraudulent users and criminals and ensures AML compliance.
Who all use CDD?
Apart from banks and financial institutions, several non-banking institutions use CDD services. These companies include high-value dealers, insurers, accountants, telecommunications services, estate agents and bill payment service providers. In short, any company that provides finance-related services, including virtual currencies and exchanges, must ensure having CDD policies in place.
When do companies resort to CDD?
The CDD process includes everything from KYC check to transaction monitoring. Companies that are subject to applying CDD regulations must perform due diligence when they – onboard new customers, verify documents (to avoid dubious documentation), spot questionable customer identity, come across any suspicious activity indicating terror funding or money laundering.
CDD is also done when there is a change in personal details of customers, such as shifting to a new address. All high-value transactions, especially by non-high value customers should go through the CDD process.
Steps Involved in CDD
CDD is a crucial yet tedious process that requires utmost attention and efficiency. The CDD programme involves the following steps:
- Data Collection: The first step is to collect essential customer data, including name, address, contact number, email address, date and place of birth, gender, nationality, occupation, ID number, signature, etc.
- Verification: The entity verifies the data collected with documents such as passports, tax receipts, identity cards, etc.
- Name screening: The institution conducts name screening to ensure the candidate’s name is not present on a high-risk profile or sanction list. It ensures that the customer does not fall under the category of criminals, politically exposed persons, terrorists or sanctioned individuals.
- Risk profiling: The entity determines the customer’s risk level based on nationality, political exposure, payment mode, net worth, documents and transaction amount. It includes monitoring each customer’s transactions with international individuals or businesses, especially in a blacklisted or grey-listed country.
- Ongoing monitoring: After completing these steps, the CDD services monitor customers’ transactions on an ongoing basis, while keeping an eye on their behavior, accounts and activities.
- Record keeping: The step includes maintaining CDD-related records in compliance with the firm’s retention policies under AML regulations.
CDD services help identify red flags on time and save a financial institution from entering illegal transactions and customer relationships. They support a firm in staying compliant with the AML regulations and mitigating the risk of money laundering.