Many sectors are now requiring a Customer Due Diligence (CDD) process be put in place to comply with stringent regulations, this is to reduce fraudulent activity and help businesses with a Know Your Customer (KYC) initiative, for example, financial institutions must have AML/CFT processes in place to verify their customer identities and the nature of their business.
The Basics of Customer Due Diligence
Customer due diligence, at its most basic form involves verifying a customer’s identity, and the businesses which they are involved, this needs to measure up to a sufficient level of confidence which the process may involve a number of regulatory obligations:
- Customer Identification: When onboarding and signing up new customers, businesses may be required to identify their customers by obtaining simple contact data like phone, email and address to photographic ID, bank statements and utility bills matching it against that person.
- Beneficial Ownership: When performing a customer due diligence check, beneficial ownership should be identified in situations where it’s a company that needs to be checked rather than the individual themselves, this includes understanding the structure of a specified company.
- Business Relationship: Companies can also obtain information that identifies the nature of a business relationship two parties may be entering and its purpose.
You can find out more about what is Identity Verification here.
When is Customer Due Diligence Required?
The application of customer due diligence plays a major part in the fight against money laundering or Anti Money Laundering (AML) which is delegated towards the Sanctions and Anti-Money Laundering Act 2018 (The Sanctions Act) which applies to the whole of the UK.
We have an article to explain what is Anti Money Laundering in more detail here.
To serve and ensure the United Kingdom’s dealing with bona fide individuals and organisations, and assisting with the identification of suspicious behaviour, financial institutions must abide by this regime and perform the necessary Know your Customer (KYC) and Customer Due Diligence (CDD) checks when the following occurs:
- When establishing a new business relationship with a customer: Performing CDD checks upon the purpose of the relationship, the intended nature of the relationship (including funds coming in and out, transactions etc)
- When suspicion occurs of money laundering or terrorist financing: Which businesses can perform further CDD and KYC checks of an individual until they meet the required confidence level score.
- When an existing customer’s circumstances change (if necessary): Keeping up-to-date information is important when upholding customer due diligence.
- Occasional transactions over a certain threshold or entries in high-risk foreign countries: These are transactions that are not carried out in an ongoing relationship valued over €10,000 if you are not a high value dealer and €15,000 if you are a high value dealer.
Risk-Based Approach: Depending on the nature of your business, different levels of identity checking and CDD protocols will be required as part of regulation, in most cases customers or clients will be subjected to standard compliance measures which requires just customer contact identification in lower risk scenarios. For higher risk circumstances, cross matching against adequate sources is required, as well as biometric facial comparison against a photo taken, liveness authentication, international watchlist and sanction checks and assessments of business relationships may also be required.
How to Perform a Customer Due Diligence Check?
When performing CDD checks, it can be as easy as obtaining the individuals contact data to ensure phone numbers are callable, emails are live and the address actually exists. furthermore, pending on the type of risk an organisation may be exposed too, more stringent processes and multi-levelled verification approaches may be necessary to gain a deeper understanding of who your customers really are.
Here are some CDD techniques businesses can perform.
- Contact data verification to ensure addresses are valid, emails are live and phone numbers are callable.
- Proof of address to connect a person’s name to a specific address.
- Cross matching a person’s ID against relevant sources like electoral rolls, insight credit data and court data.
- Verifying and checking date of birth.
- Screening individuals against PEPs & sanctions, adverse media, deceased and other international watchlists.
- Machine readable zone (MRZ) to extract key credentials from an identification document which is then verified against another source.
- Optical character recognition which can be combined with MRZ to prove a biometric match of a person’s photo.
- Liveness and movement checks to authenticate a person is live and not a static image or video.
- Bank account validation to establish ownership, current balance, fund availability and that details input are correct.
Why choose Melissa for your Customer Due Diligence Checks?
In addition to being the address experts, Melissa offers a complete identity verification solution to meet multi use & stringent international compliance obligations in real time. Easily tailor our combined services to your specific sign-up process and risk management requirements to ensure fast and accurate onboarding, while protecting your organisation against all areas of fraudulent threat and establishing customer due diligence.