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

1. Identity Verification: Confirming the identity of customers.

2. Risk Assessment: Evaluating the potential risks associated with a customer.

3. Ongoing Monitoring: Continuous review of customer activities and transactions.

4. Regulatory Compliance: Adhering to legal and regulatory requirements.

5. Information Gathering: Collecting relevant data about customers and their activities.

How Customer Due Diligence Works

The typical CDD process involves:

1. Information Collection: Gathering personal and financial information from customers.

2. Identity Verification: Validating the provided information against reliable sources.

3. Risk Profiling: Assessing the level of risk associated with the customer.

4. Screening: Checking against sanctions lists and politically exposed persons (PEPs) databases.

5. Ongoing Monitoring: Regular review of customer transactions and activities.

6. Reporting: Flagging and reporting suspicious activities to relevant authorities.

Types of Customer Due Diligence

Various levels of CDD exist:

1. Simplified Due Diligence (SDD): For low-risk customers.

2. Basic Customer Due Diligence: Standard level of checks for most customers.

3. Enhanced Due Diligence (EDD): More rigorous checks for high-risk customers.

4. Ongoing Due Diligence: Continuous monitoring throughout the business relationship.

5. 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.