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Customer Due Diligence Basics

Customer Due Diligence means verifying a customer’s identity and the business in which they are involved. The process involves a number of regulatory obligations.

Customer Identification: Companies must verify the identity of their customers by obtaining personal information, including name, photographic ID, address, and birth certification, from a reliable, independent source. For KPMG CDD management systems  visit https://kpmg-preva.com/

Beneficial Ownership: Due diligence measures should identify beneficial ownership of a company in situations where this is not the client. Identifying beneficial ownership should include understanding the control structure of the company.

Business Relationship: Companies must also obtain information on the nature of the business relationship they are entering into, and the motive behind it.

When is CDD Required?

The application of Customer Due Diligence (CDD) is required when companies with Anti- Money Laundering processes enter a business relationship with a customer or a potential customer to assess their risk profile and verify their identity.

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Financial institutions must carry out KYC and CDD measures in the following circumstances:

A first-time contract: Companies must perform due diligence measures before starting a business relationship to ensure that the customer matches their risk profile and isn’t using a fake identity.

Occasional transactions: Certain transactions require a CDD warrant . These might involve amounts of money over a certain threshold or entities in high-risk foreign countries.

Money laundering skepticism: If a customer is suspected of money laundering or financing terrorism, companies must implement CDD checks.

Untraceable documentation: When the identification documents that customers have provided are unreliable or inadequate, companies should apply further CDD scrutiny.

How to Perform CDD?

Customer Due Diligence is an imperative aspect of managing the risk that your company may face in future. There may be cases where CDD is not enough, and so Enhanced Due Diligence (EDD) would have to be performed in these cases to gain a deeper knowledge of who your customers are.

Here are a few ways in which you can perform CDD:

Establish and source the identity and business activities of your potential customer before coming into a business relationship with them to help screen bad actors at an early stage.

Categorize your customers’ risk type before securing this information so it is in a digitally safe place and can be more easily accessible for potential future regulatory checks

Determine whether Enhanced Due Diligence (EDD) is needed or not

What is Enhanced Due Diligence?

Enhanced due diligence (EDD) is a KYC process that provides a higher level of scrutiny for potential business partnerships and highlights risk that cannot be detected by customer due diligence. EDD goes beyond CDD and aims to establish a higher level of identity assurance by obtaining the customer’s identity and address, and evaluating the risk category of the customer.

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