Glossary term
Customer Due Diligence (CDD)
Subject: Financial Crime, Customer Due Diligence and Correspondent Banking
Also known as: Client due diligence
Customer due diligence is the checking a firm does to know who its customer is: identifying and verifying them, understanding why they want the relationship, and keeping that picture current so laundering and terrorist financing risk can be managed.
Explanation
CDD usually has four parts: identifying the customer and verifying identity with reliable documents or data; finding the beneficial owner behind any company or arrangement; understanding the purpose and expected pattern of the relationship; and monitoring it, updating the information over time. The depth is set by risk: simplified measures for low-risk cases, standard measures for most, and enhanced due diligence for high-risk cases such as politically exposed persons or complex structures. Where a firm cannot complete CDD, it must not open the account or carry out the transaction, and should consider a suspicious report. Know Your Customer is the everyday name for the same activity, though some firms use it for the onboarding stage only. CDD applies to banks, insurers, securities firms, and, in many countries, lawyers, accountants and dealers in high-value goods. Supervisors who sample customer files check first whether the verification evidence and the risk rating are actually there.
Example
At a branch counter, a woman applies for a savings account. The bank asks for a government identity document and proof of address, checks them against reliable data, asks about her employer and the expected pattern of deposits, and screens her against sanctions and politically exposed person lists. Her profile is rated low risk, so standard measures apply, with a review in a few years.
Not to be confused with
- Due Diligence
- Due diligence is a general term for careful investigation before a decision. CDD is the specific customer checks required by AML rules.