In today's fast-evolving financial landscape, Customer Due Diligence (CDD) isn't just a regulatory requirement—it's a critical risk management tool that helps banks protect themselves and their customers from financial crimes.
Understanding Customer Due Diligence
Customer Due Diligence (CDD) is the process by which banks collect and verify information about their customers to assess risk and comply with anti-money laundering (AML) and know-your-customer (KYC) regulations.
When Banks Should Apply CDD
1. New Customer Onboarding Banks must conduct CDD when establishing a new banking relationship, regardless of the account type or transaction volume.
2. High-Risk Customers Enhanced due diligence is required for customers identified as high-risk, including: - Politically Exposed Persons (PEPs) - Customers from high-risk jurisdictions - Customers with complex ownership structures - Customers in high-risk industries
3. Unusual Transactions CDD should be triggered when customers engage in transactions that are: - Unusually large - Inconsistent with their profile - Structurally suspicious - Involving high-risk countries
4. Periodic Reviews Regular CDD reviews are required to ensure customer information remains current and accurate, typically: - Annually for high-risk customers - Every 2-3 years for standard customers - When significant changes occur
5. Trigger Events CDD should be updated when: - Customer information changes significantly - New products or services are added - Transaction patterns change dramatically - Regulatory requirements change
CDD Components
Effective CDD includes: - Identity verification - Beneficial ownership identification - Business relationship purpose assessment - Ongoing transaction monitoring - Risk assessment and categorization
Benefits of Proper CDD
- Regulatory compliance
- Risk mitigation
- Fraud prevention
- Reputation protection
- Enhanced customer relationships
At FICS, we help banks implement robust CDD processes that meet regulatory requirements while maintaining efficient customer onboarding and relationship management.
