Customer due diligence (CDD)
Customer due diligence (CDD) is the act of performing background checks and other screening on the customer to ensure that they are properly risk-assessed before being onboarded. CDC data consists of information regarding a customer or client that makes it possible to assess to what extent the client might put the business at risk of being misused for money laundering or the financing of terrorism.
CDD is at the heart of the anti-Money Laundering (AML)and Know Your Customer (KYC)initiatives. It is designed to help banks and other financial institutions prevent financial crimes like money laundering, terrorist financing, human and drug trafficking, and fraud.
Why is CDD important?
customer due Diligence is a specific legal term that applies to all regulations, while the meaning of “Know Your Customer” can slightly differ from jurisdiction to jurisdiction. CDD and KYC often get confused. CDD involves a specific list of procedures set by law, while the list of required KYC checks may vary.
4 Different Aspects of Customer Due Diligence
•Standard Customer Due Diligence
This is a basic examination of a predetermined set of factors to assess the risk level of potential customers. The identity of the prospective customer is verified by several reliable sources. It also determines and evaluates the nature of the customer’s business or and the customer’s purpose for entering a transaction.
•Enhanced Due Diligence
The the KYC process allows higher-risk persons or corporations to be evaluated. Customers from high-risk countries, Politically Exposed Persons(PEPs), cross-border correspondent relationships with a third country, or high transaction amounts must be put through Enhanced Due Diligence (EDD).
•Simplified Customer Due Diligence
This is the opposite of enhanced due diligence and a lenient version of standard due diligence. It is implemented when the customer poses an extremely low risk for financial crimes. It is required to know the customer’s identity and basic details under a simplified customer due diligence process, and there is no need for carrying out detailed due diligence.
•Ongoing Due diligence
The risk profile of the customer should be monitored regularly or specifically upon the identification of certain indications arising from doubt about the status of the customer. To keep up with the constant change in financial transactions, a bank should observe the actual movements of the respective customers. A typical example is a customer becoming a PEP will change the customer risk rating.
Customer Due Diligence Requirements
The required information can differ across jurisdictions, but here’s a common baseline to BVN (in Nigeria):
To verify an individual:
1. Full name;
2. Residential address;
3. Government-issued identification.
To verify a company:
1. Registered corporate Name;
2. Trading name;
3. Registration number;
4. Full address of the registered office and head offices;
5. Principal place of business operations;
6. Contact details.