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First things first, what is CDD?
CDD Meaning: CDD stands for customer due diligence, a crucial part of establishing customer identity in order to comply with money laundering regulations.
Customer due diligence is essentially the process of verifying that a customer is who they claim to be.
To perform customer due diligence - also known as CDD - firms must identify the client, and then check that they are who they’re claiming to be. This process involves obtaining details about the individual, including their name, photograph, address and date of birth. This is usually done by gaining access to documents like passports, driving licences or utility bills.
To carry out customer due diligence for a business, you’ll need to check the company is registered with Companies House, and identify any persons of significant control (PSCs). You’ll also need to find out if there are any ultimate beneficial owners, as well as look at the company's annual returns and statements.
Now that we’ve established the meaning of CDD, it’s important not just to answer ‘What is CDD?’ but also ‘When is it needed’?
The CDD process is a crucial part of every firm’s effort to remain AML compliant. By verifying the identity of your potential client, you minimise the chance of going into business with a high-risk individual or entity, who could make your company more vulnerable to money laundering.
Customer due diligence is required at the onboarding stage when your firm is in the process of bringing in a new customer. Every firm that’s subject to money laundering regulations should be performing CDD as part of their risk-based approach to AML. This not only includes all businesses in the financial services sector but also:
High-value dealers.
Estate agents.
Money service businesses that aren’t monitored by the FCA.
Telecom, digital & IT payment services that aren’t monitored by the FCA.
Bill payment service providers that aren’t monitored by the FCA.
No two customers are the same, this is why a risk-based approach to CDD whereby procedures are constantly tailored to the level of risk posed by each new onboarding customer, is essential. A risk-based approach should be taken toward those who pose a significant money laundering risk, including individuals with a suspicious transaction history, those from high-risk countries and PEPs.
Carrying out a risk assessment is the perfect starting point when setting up a risk-based approach, with this process allowing you to evaluate what procedures you need to put in place per customer. For customers that pose a more significant threat, enhanced due diligence (EDD) should be carried out, with this process involving the meticulous cross-referencing of personal details.
Most firms still complete their customer due diligence manually. This involves checking physical ID documents to verify the person’s name, address and date of birth, and then checking that person’s details against sanctions and PEP lists.
However, manual checks leave room for human error, as passports and other documents can be easily forged.
Electronic ID verification is by far the most reliable way to complete AML checks, as it cross-checks a person’s details using multiple data platforms, as well as screening for sanctions and PEPs. If the documents or details provided are fake, electronic ID verification will expose this.
To ensure that businesses are compliant with AML best practices, CDD requirements are outlined by regulated standards, including the Financial Action Task Force (FATF). The FATF recommendations feed directly into a business' AML compliance efforts, with the task force being responsible for the legal definition of PEPs among other regulations.
In addition, CDD requirements are also legally required in order to comply with the Financial Crimes Enforcement Network (FinCEN). Information regarding Beneficial Ownership, in particular, should be reported to this network that collects financial intelligence to share with regulators and law enforcement bodies. Lastly, counter-terrorist financing (CTF) regulations should also be carefully followed.
So, we’ve established ‘what is CDD’, but what about KYC, otherwise known as Know Your Customer?
Think of KYC as the foundational stage of the CDD process, gathering a comprehensive amount of information about a customer before verifying their existence. Then, CDD takes over, assessing the risk of the customer based on their verified identity. Scrutinising their profile, CDD assesses whether a customer may be taking part in money laundering, terrorist financing or other illegal activities.
These processes are not totally separate from one another, however, being interlinked in your AML compliance efforts. An essential security duo, while KYC creates the profile of a customer, CDD then scrutinises this profile by cross-referencing information and checking physical ID documents to comprehensively identify the individual.
At SmartSearch we offer an electronic KYC process, otherwise known as eKYC, that verifies the identity of an individual or company using solely digital resources. One method in which this is achieved is through using electronic documents to verify identity. Sometimes referred to as EIDV, this process uses the private information supplied and cross-references it with the digital footprint of the customer to ensure proper verification.
Using three different layers of verification, our TripleCheck solution is one of the industry’s most robust eKYC processes. The solution uses electronic techniques, including ID verification and facial recognition software, which are then used against sanctions and PEP lists to ensure that the customer you’re interacting with is exactly who they claim to be.
Carrying out Customer Due Diligence is crucial, not just for the integrity of your own business but also for the solidity of the enforced AML regulations. Businesses that operate in the EU must comply with the stipulations outlined in the 6AMLD or face potentially major consequences such as sanctions, fines and even jail time for serious offences.
As an essential part of the AML process, making sure you carry out comprehensive CDD checks will also:
Help in your own business’ regulatory compliance, confirming that your customers are who they say they are.
Assist in fraud prevention to protect your own business.
Contribute to the fight against money laundering and other financial crimes by submitting a Suspicious Activity Report (SAR) if you suspect money laundering following your CDD check.
The CDD process is not a one-time process, it is an ongoing procedure that is constantly evaluating the risk of a customer. Once customer screening has taken place and a risk profile has been drawn up, ongoing monitoring should be performed throughout the duration of the contract.
This process involves transaction monitoring and record keeping to ensure that your customers are constantly in keeping with anti-money laundering regulations. Our SmartSearch platform makes ongoing monitoring effortless, being the online AML, fraud prevention and KYC platform that uses fully automated Sanction, PEP, SIP and RCA screening alongside daily monitoring services.
You may think that once a customer has been onboarded, you no longer need to consider their risk to your business, but this is a common misconception. In fact, ongoing monitoring of a customer is crucial as it allows you to form a full profile of what the individual is really like, including their changing financial position and transactional behaviour. Continuously monitoring customers can also be critical for the following reasons.
Even though a customer might have raised no AML red flags during the onboarding process, this is not to say that issues may not occur afterwards. Monitoring should take place to ensure they remain compliant with regulations.
An individual’s status may change over time, with political shifts meaning that they become PEPs, meaning that enhanced due diligence measures should be applied.
A fraudulent or criminal organisation may have made it through your first level of AML security, but only with continued monitoring and comprehensive measures could they be discovered.
Now that you've ascertained what CDD is and why checks are crucial to establishing the identity of your customers, let’s dig into how SmartSearch’s own CDD-checking technology could be the solution for you.
With SmartSearch you can:
Conduct identity checks in under 2 minutes.
Perform both international and domestic checks.
Benefit from the highest pass rate on the market at 97%.
Integrate our CDD tech with your CMS seamlessly - we integrate with over 30 different CMS types and case management tools.
Join over 6,500 companies who use SmartSearch for their CDD checks and book a free demo today.
SmartSearch is a unique AML platform, which uses electronic ID verification to perform CDD quickly and accurately. This innovative product incorporates fully automated sanction checks, PEP, SIP and RCA screenings, offering an all-encompassing solution to verify individuals and businesses. The platform also offers daily monitoring to ensure all client firms remain fully compliant and protected throughout the life of their contract.
Fulfilling your CDD obligations has become far easier in the modern days of technological advancements where difficult manual processes have now been automated. With SmartSearch, you can enjoy such technological solutions, including:
SmartDoc: An identification document validation technology that removes the need for laborious manual checks thanks to software like facial recognition technology to authenticate documents. Our SmartDoc software saves you considerable time and effort.
TripleCheck: TripleCheck is a three-tiered solution that combines three highly advanced verification methods. The whole process provides a powerful and robust AML solution, carrying out verification, facial recognition, digital fraud checks and much more.
An integrated AML platform: Our bespoke electronic software houses everything you need to fulfil your AML compliance requirements under one roof.
Want to enjoy these innovative features right away to quickly transform how your business operates alongside AML procedures? Contact SmartSearch today to discover exactly how we can optimise your business and simplify your AML process. Upgrade and streamline your AML obligations effortlessly with SmartSearch.
This is the core information that answers the question ‘what is CDD?’. We hope that you now have a better understanding of how CDD checks operate. The AML experts at SmartSearch have also put together some FAQs around the subject of customer due diligence.
CDD checks should be part of any responsible business's onboarding checklist. Not only will you be putting your business at risk by dealing with unverified customers, but you could also be subject to money laundering penalties such as fines.
Don’t get caught out by the consequences of anti-money laundering regulations by skipping the CDD process.
Enhanced customer due diligence checks differ from standard customer due diligence because they are performed on high-risk individuals. The customer could be deemed high risk because of customer factors, such as being a Politically Exposed Person. It could also be based on geographical factors such as being from a country with sanctions or embargoes.
The result is that the customer will require an enhanced CDD process with a longer CDD checklist in order to establish the identity of the individual and the source of funds.
A Suspicious Activity Report (SAR) is a document that should be produced if money laundering or fraud is suspected. Regulated by the UK Financial Intelligence Unit (UKFIU), SARS can be submitted through the SAR Online System. With 460,000 SARs submitted every year, these documents have become crucial in the fight against financial crime and fraudulent activity.
Suspicious activity could be defined as anything from recognising particularly high-value deposits, a customer refusing to part with necessary AML information or transactions that involve overseas transfers. When it comes to submitting an effective Suspicious Activity Report, you should ensure to include as much information as possible to aid with the investigation.
