Here’s how you could up your CDD game.
Due diligence usually refers to the steps we take in an attempt to ensure that we or the entity in question are safe from any complications or obstacles. Customer due diligence (CDD) is an integral part of almost every business and their AML/CFT policies. Being sure about who your customers are is the best way to avoid any sort of compliance breaches or financial crimes and helps assess the risks involved.
There are different kinds of due diligence such as simplified due diligence (SDD) for basic KYC checks of a customer’s identity and Enhanced due diligence (EDD), which is a more advanced form of CDD for customers who bring more risks into the business such as PEP’s or someone from a risky jurisdiction. Knowing your customers, monitoring their activities and managing the risks involved before and after onboarding them is an ongoing process. Let’s look at a few ways we could ensure better CDD for your businesses.
Risk-based approach
If you are a compliance professional, there is no way you haven’t heard of this term! A risk-based approach (RBA) is one of the most common ways to recognise risks and assess ways to combat them using AML/CFT regulations depending to the gravity of the situation. This approach is important to analyse if a customer’s profile has risks and what kind of due diligence (SDD or EDD), would be suitable as per the level of risks involved. An RBA is applied because no two customers or scenarios could be the same and there is no one fits all solution in compliance.
Maintain a report
Maintaining a report that documents every step and measures taken to conduct due diligence is an important element of a successful KYC/CDD structure. Recording the process would help provide regulatory authorities with information regarding the steps taken by the firm and demonstrate that all the necessary standards are being met by the organisation’s compliance policy during audits.
Better Technology
Better technology is one of the biggest advantages in today’s times. It makes way for secure, hassle-free and smooth KYC/due diligence processes for customers and the company. With emerging digital identity verification methods, it becomes convenient for customers to get themselves verified just using their phone’s front camera, conduct biometric verification, or authenticate documents necessary for onboarding with just a tap. Automation and providing a progressive digital medium also helps companies attract more business opportunities and develop a strong client base.
Look for warning signs
There will be certain situations during onboarding and KYC routines where a customer may act suspiciously by failing to provide correct information, behaving aggressively, try and hurry the process of opening an account with the firm or provide the firm with vague details or documentation about themselves and their businesses. These are some of the red flags to be looking out for during CDD processes. In some cases the potential customer may seem alright on paper and research due diligence methods well, but there will be circumstances where the funds in their account, their profession or intentions do not match.
CDD, even though is a routine procedure, there is no one size fits all approach for it and each case should be treated individually as per their backgrounds in order to avoid any compliance breach. The importance of a proper KYC/CDD process is not just beneficial for your organisation or customers, but also to avoid the possibilities of financial crimes, fraud or illicit practices. With technology booming and criminals getting creative with their ideas to commit illegal financial crimes, establishing a better due diligence program is the way to go!
Please note that all opinions made on this blog should be treated as a guide and not legal advice.