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There are two terms that are frequently used in the banking sector, KYC and CDD. Many think they are the same, but they are actually different. We plan on educating you about these two related but different terms through this blog.
Customer Due Diligence (CDD) refers to the act of collecting identifying information by a financial institution to verify a customer’s identity and assess the level of criminal risk.
Listed below are the important steps involved in CDD:
To identify customers, banks must obtain personal information, such as name, a photographic identification document (ID), birth certificate, and address. This is done to ensure that the customer is not using a fake identity to access the bank’s services.
Quite often banks need to evaluate an entire company rather than a single individual. This is when due diligence measures check the company's beneficial ownership. It is done for determining the control structure of the company.
Banks obtain information related to the nature of a specific business relationship and its purpose.
CDD is not a one-time obligation. Banks perform CDD periodically throughout a business relationship in order to ensure that customers’ transactions are consistent with their established risk profile.
Before entering a business relationship, banks must perform a CDD check to ensure that their customer is not using a fake identity and matches the desired risk profile.
There are some transactions that warrant CDD measures on an occasional basis. For example, transactions involving money exceeding a certain threshold or transactions with entities located in high-risk foreign countries.
Banks must perform CDD checks when suspecting a customer of financing terrorism or laundering money.
Banks must take CDD measures when customers provide inadequate or unreliable documentation.
“KYC” refers to the initial identification and verification measures taken by a financial institution while opening an account. Banks may refuse to open an account or halt a business relationship if the customer fails to meet minimum KYC requirements. This onboarding processes help prevent and identify money laundering, terrorism financing, and various illegal corruption schemes. It includes ID card verification, face verification, document verification such as utility bills as proof of address, and biometric verification.
Real-time verification across national databases and government data sources.
Verifying driver’s licenses, passports and other government-issued IDs for ruling out identity frauds.
Checks against local and global sanctions, OFAC and politically exposed persons list.
Identifying suspicious activity and risky behavior patterns using scorecards and user-defined business rules to uncover identity fraud.
Gathering information about device type, porting, and SIM cards, analyzing device fingerprints by combining GPS location, VPNs, and IP addresses, and preventing online fraud.
Using one-time passcode or knowledge-based authentication questions to enhance the KYC process.
Across the globe, banks are required to comply with laws and regulations concerning financial crimes.
KYC does not just relate to regulatory compliance, but it also benefits the organization as it is an important measure of risk management.
A good KYC policy or process will enable banks to better understand their customers and their financial practices, making it easier to assess, manage and mitigate risk.
KYC safeguards banks from fraud, money laundering, bribery, human rights violations, and other forms of corruption and financial crime.
By conducting thorough KYC checks, banks can minimize the financial, reputational, regulatory, and strategic risks from customers.
If you require any bank account opening assistance in the UAE, feel free to contact us at (+971) 529095829 or email@example.com for a free consultation. We are happy to provide you with a seamless experience.