Customer due diligenceCDD

Understanding a customer's risk before and during the relationship.

A bank doesn't only check who a customer is. It also asks what they do, where their money comes from, and what activity to expect, then keeps watching for changes.

Risk-based collection and assessment of customer information, including expected activity and ongoing monitoring. Risk-based means the depth of the checks scales with how risky the customer and the relationship look.

In the US, the Financial Crimes Enforcement Network (FinCEN) customer due diligence rule describes four core elements:

• Customer identification and verification, which confirms who the customer is.
• Beneficial ownership identification and verification, which finds the real people behind a legal entity customer.
• Understanding the nature and purpose of the relationship, which builds a picture of expected activity.
• Ongoing monitoring, which watches activity and updates the customer's risk profile.

A customer due diligence process typically works like this:

1. The institution collects information about the customer and the relationship.
2. It assigns a risk rating, such as low, medium, or high.
3. It applies checks that match the rating.
4. It monitors the account and updates the rating when activity or circumstances change.

Customer due diligence sits next to terms that are easy to mix up:

• Know your customer (KYC) is the wider duty, and customer due diligence is the risk-assessment part of it.
• Enhanced due diligence (EDD) adds deeper checks for high-risk customers.
• Ongoing monitoring is the continuing review that keeps the risk picture current.