Customer Due Diligence (CDD) is a crucial part of a financial institution. It’s a process to collect and evaluate relevant information about a client and its business. In this blog, we will dive into what CDD is, why it is important to the client, and the basic steps to it.
By accepting new accounts, financial institutions take the responsibility for financial actions of the client, including financial crimes and terrorist activity. At the same time, the client takes risks in partnership with the financial institution that may not comply with existing laws. To lower the risk for both parties and maintain a trustworthy and transparent relationship it’s mandatory to follow the latest Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) directives.
What is KYC process
Know Your Customer (KYC) is the key tool to making sure that our customers’ due diligence is guaranteed. This process includes filling in basic personal information and an additional questionnaire. This process is designed to get key information that helps us to follow AML/CTF requirements properly.
KYC process includes:
- ID card verification
- face verification
- document verification such as utility bills as proof of address
The KYC process helps us to evaluate our clients’ risk factors which are front and center to us, as we take a risk-based approach to CDD. It means that clients who have potentially higher risk have to go through an enhanced due diligence process.
The main risks include:
- money laundering
- terrorist financing
- sanctions busting
- impact on the image
What is Re-KYC
Customer Due Diligence is never complete. As clients’ activities and external circumstances shift, the client’s risk profile is affected. Document reassessment or as we call it re-KYC is a crucial part of compliance. It helps to keep financial institutions, as well as clients up-to-date, reduces criminal activity, and improves communication between parties.
Why it is important for the customer
Customer Due Diligence may look like a lot of hassle for a customer, who’s just trying to open a bank account. However, these processes protect both parties in business transactions and relationships as it creates a secure and trustworthy environment to enable financial activities within the company.
Digital technologies have made the onboarding experience much more manageable and smoother for the client. Procedures that used to take months are now transformed into intuitive and streamlined experiences. Data protection has also evolved so processes are far more secure with methods such as advanced authentification giving customers confidentiality in every CDD procedure.