Customer Due Diligence For Banks- A Comprehensive Process to Prevent Financial Crimes

Collecting the personal data of clients is not enough while onboarding, the assassination of that data is also a requirement to know whether the collected credentials are fake or real. Client due diligence is the only procedure of gathering the data and also verifying it when enrolling an individual. This process requires the name of the client, their address, and other personal information. All businesses should carry out CDD while establishing a business relationship with another entity. For example, a trading platform or a bank needs to check the passport of the client before permitting them to open an account and deposit payments into it. Without availing customers due to diligence service, real businesses can raise problems for themselves and have to deal with heavy fines for non-compliance with AML requirements.

Customer Due Diligence and Its Types

Client due diligence is a necessity for the safety of systems from money laundering, also it helps to observe UBOs to secure the financial institutions. There are some types of customer due diligence, which are standard due diligence, simplified due diligence, and enhanced due diligence. All of these are the essentials of CDD that are much more efficient in their objectives for the prevention of financial crimes.


Standard Due Diligence

SDD is a mechanism that is performed in the banks for identification, and it is the very first step of observing a client through the know your customer (KYC) process. In this step, customers are identified by the verification of their personal information like government-approved ID cards. It is practiced to highlight the reason for business collaborations in case large transactions are executed and to catch illicit activities like money laundering.

Simplified due diligence

The customers that are not risky for organizations can be verified conveniently through legal identity document verification in simplified due diligence, just because of the reason that it is considered for less or no financial crimes.

Enhanced Due Diligence In Banking

Enhanced due diligence is best for distinguishing high-risk clients, who are performing illicit acts like money laundering, corruption, and terror financing. It determines the uncertain customers and further verification is performed. Enhanced due diligence provides an outcome by accessing the funds to eliminate the fear of crimes and penalties that a system has to bear if they will not practice this CDD for the prevention of financial crimes. Each and every entity is scanned against Politically exposed persons (PEPs) lists, and government exposed blacklists to ensure that they are safe from all criminals that can ditch them and affect their reputation.

Process of Customer Due Diligence for Banks

Client due diligence is an efficient way of verification that identifies all those entities that are at risk for the financial institutions. The mechanism of CDD is broken down into many steps among them the initial step collects the data such as:

The customer’s full name

Residential address of the client
The email address
The contact number
Place and the date of birth of end-user
A government-approved ID card number

If a person is a businessman and owning an authoritative organization then there are many more further credentials that are needed for verification, such as;

Name of company
Type of business
Ultimate beneficial owners (UBO)
Information related to the shareholder and the senior managers


Ultimate Beneficial Ownership (UBO)

The customers that arrive for the enrolment might be scammers and acting to be the same or legal individual that is the reason which compels Financial institutions to verify the beneficial owners of the assets and the accounts. It is important because such scams are not acceptable for any authority as they can give rise to fraud reports and affect the productivity of financial institutions. This transactional attitude is highlighted because the beneficial ownership wants to stow away their identity. EDD banking is efficiently working to affirm the identity of the entity and eliminates all the queries that the individual is not risky for the system. A cautionary step like this can protect all financial departments from crimes like money laundering.

Benefits of Due Diligence Financial Services in Industries

Customer Due diligence program is performed by several institutions to scan the entities who are not advantageous for their systems such as;

Healthcare centers
Legal departments
E-commerce stores
Real estate businesses
Insurance companies
Travel industries
Banking institutions

In a nutshell

After the whole conversation, the final thoughts are that the customer due diligence for banks is a smart process of customer verification to provide a shield to all organizations from the risks of money laundering and identity thefts. Mainly, it supports fetching the beneficial owners (UBOs) and saving the financial institutes from them.

Author Bio:

Eric is a contributor writer, A writer by day, and a reader by night. He has written continuously for many blogs. I write about emerging technologies, AI, Cryptocurrency, businesses, cyber security, and fintech.

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