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Customer Due Diligence (CDD)
What is Customer Due Diligence (CDD)?
Customer Due Diligence (CDD) is a process used by financial institutions and cryptocurrency businesses to verify the identity of their clients and assess potential risks of illegal intentions for the business relationship. CDD is a critical component of Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.
Key Aspects of Customer Due Diligence
Identity Verification: Confirming the identity of customers.
Risk Assessment: Evaluating the potential risks associated with a customer.
Ongoing Monitoring: Continuous review of customer activities and transactions.
Regulatory Compliance: Adhering to legal and regulatory requirements.
Information Gathering: Collecting relevant data about customers and their activities.
How Customer Due Diligence Works
The typical CDD process involves:
Information Collection: Gathering personal and financial information from customers.
Identity Verification: Validating the provided information against reliable sources.
Risk Profiling: Assessing the level of risk associated with the customer.
Screening: Checking against sanctions lists and politically exposed persons (PEPs) databases.
Ongoing Monitoring: Regular review of customer transactions and activities.
Reporting: Flagging and reporting suspicious activities to relevant authorities.
Types of Customer Due Diligence
Various levels of CDD exist:
Simplified Due Diligence (SDD): For low-risk customers.
Basic Customer Due Diligence: Standard level of checks for most customers.
Enhanced Due Diligence (EDD): More rigorous checks for high-risk customers.
Ongoing Due Diligence: Continuous monitoring throughout the business relationship.
Know Your Business (KYB): Due diligence specifically for business clients.
Similar Terms
Know Your Customer (KYC): A subset of CDD focusing specifically on verifying customer identity.
Anti-Money Laundering (AML): Broader set of procedures that include CDD to prevent money laundering.