Customer Due Diligence is the subform of the "Know Your Customer" service. KYC supports CDD in verifying customers' information. Transactions for past KYC procedures have now turned into CDD transactions.
Know Your Customer (KYC) is a control procedure that financial institutions providing financial services apply to existing and new customers to identify and prevent risks. The control processes applied in the KYC checklist ensure that the business has the necessary information about the customer to open an account, and the customer's risk level is determined.
Besides, KYC refers to the checks performed at the beginning of the customer relationship to determine and verify that they are who they say they are. This is particularly common in organizations subject to AML regulations. Many companies and organizations seeking more information about or otherwise interacting with their potential customers before signing contracts take due diligence and ensure that they are disputed, prone to delay, or non-payment of due funds.
Customer Due Diligence is the process used by financial institutions to collect and evaluate relevant information about potential customers. It aims to reveal the financial institution's potential risks of doing business with a particular organization or individual by analyzing various sources.
Financial institutions determine the risks they will be exposed to in advance by applying procedures to know their customers and take precautions against them. The most important of these risks are money laundering and terrorist financing crimes. Moreover, trade sanction checking is an integral part of client onboarding. Failure to comply with trade sanctions is a strict liability offense (where relevant authorities entertain no rationale for a breach) and an essential part of Client Due Diligence.
What Is The Difference Between KYC and CDD?
KYC and CDD are similar, but there are some differences. The first allows the business to create a customer's risk profile by retrieving its data before starting a business relationship. Conversely, the CDD states that the information provided by them is correct or incorrect. It also requires background and ultimate utility ownership testing. For regulated entities, past KYC controls have now turned into CDD programs.
The main difference between KYC and CDD is that apart from the emphasis on financing, CDD controls are carried out in a process, and communication with the customer continues. In addition, it provides a continuous assurance framework, especially for organizations that handle many day-to-day transactions, such as banks and real estate. They use sophisticated software developed to monitor fund movements and detect suspicious situations or "red flags." Thus, it maintains the good work carried out with KYC from the beginning to the end of the customer relationship and stakeholder activity and always provided assurance that the organization's systems are not used to launder criminal proceeds.
Therefore, the CDD is an integral part of the AML program and is checked at regular intervals, including transaction volume, amount of money, and geographic distribution. However, as a warning note, software systems need to be checked and updated regularly to get results. Depending on the nature and complexity of automated systems' controls, the "regular intervals" at which monitoring is repeated are different for each system. They m
ay change every day or every year.
Customer Due Diligence is a form of "Know Your Customer" inventory.
KYC
assists the CDD in verifying the information provided by customers. Transactions for past KYC procedures have now turned into CDD applications. In the past, the
KYC
process was not that effective in preventing crime. This led to the development of software that automated the entire process. This has helped many financial institutions and other organizations. It is easy to conduct both real-time and regular checks in this software process.
The CDD
process must continue throughout the business relationship because a customer's risk profile may change over time.
The New Approach to CDD and KYC
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