Customer Due Diligence or ‘CDD’ is a process to assess all of the risks associated with a client or relationship, including KYC, and that requires that the overall client conduct, and transactions are assessed to determine if this is unusual and reportable. CDD requires that obliged entities assess the risks before entering into a relationship, and continuously thereafter in response to trigger events or suspicious activity for example. It is a continual process that is designed to assess and monitor changes in customer risks.
By establishing a customer’s identity, a financial institution is enabled to predict with relative certainty the types of transactions in which the customer is likely to engage, and assess the extent to which the customer exposes it to a range of risks (i.e., money laundering and sanctions).
It is imperative that organizations must know their customers through Customer Due Diligence to protect against fraud and comply with the requirements of relevant national legislation and regulation. Proper CDD programs help defend financial institutions’ reputation and the integrity of the financial system by reducing the likelihood of banks or other obliged entities from becoming a vehicle for or a victim of financial crime. CDD programs thus make up an essential part of good risk management.
- Introduction to Risk-Based Approach to Virtual Currencies
- Risk-Based Approach to Virtual Currencies: 5th AML Directive