Quick Answer: Why Is CDD So Important?

What is difference between KYC and CDD?

What’s the difference between KYC and CDD.

CDD (Customer Due Diligence) is the process of a business verifying the identity of its clients and assessing the potential risks to the business relationship.

KYC is about demonstrating that you have done your CDD..

What are CDD requirements?

The CDD Rule requires these covered financial institutions to identify and verify the identity of the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.

What are the 3 components of KYC?

To create and run an effective KYC program requires the following elements: Customer Identification Program (CIP) How do you know someone is who they say they are? … Customer Due Diligence. … Ongoing Monitoring.

Why is EDD required?

In the prevention of money laundering and terrorist financing, EDD has become the standard practice. EDD is required before any business relationship or deal can be reached between two parties. … For suspicion of money laundering or when there is a suspicious activity monitoring.

What is EDD in KYC?

Enhanced due diligence (EDD) is a KYC process that provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by customer due diligence. EDD goes beyond CDD and looks to establish a higher level of identity assurance by obtaining the customer’s identity and …

Why is CDD important?

Customer due diligence (CDD) is at the heart of Anti-Money Laundering (AML) and Know Your Customer (KYC) initiatives, and is designed to help banks and financial institutions verify if customers are who they say they are, confirm they’re not on any prohibited lists and assess their risk factors.

What CDD means?

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Who is beneficial owner in KYC?

The term “beneficial owner” has been defined as the natural person who ultimately owns or controls a client and/or the person on whose behalf the transaction is being conducted, and includes a person who exercises ultimate effective control over a juridical person.

Why is customer due diligence?

In short, due diligence is an act of performing background checks on the customer to ensure that they are properly risk assessed before being on-boarded. Customer Due Diligence enables an organization to evaluate the extent to which the customer exposes it to a range of risks.

What is difference between CDD and EDD?

CDD aims at collecting data about customers’ identity and contact information as well as measuring their risk. EDD is used for high-risk customers, aka those who are more likely to implement related to money laundering and terrorism financing activities due to the nature of their business or transactions.

What are the three elements of customer due diligence?

The CDD Rule includes four core elements of customer due diligence, each of which should be included in the anti-money-laundering (AML) program of a CFI: (1) customer identification and verification, (2) beneficial ownership identification and verification, (3) understanding the nature and purpose of customer …

What is KYC checklist?

Acronyms like KYC (Know Your Customer) CDD (Customer Due Diligence) and AML (Anti Money Laundering) have placed added focus on clearly verifying the identity of your customers and the source of their funds for purchases of property and businesses.

What is the beneficial ownership rule?

Beneficial Ownership is a requirement from the Financial Crimes Enforcement Network (FinCEN), under the Bank Secrecy Act, which mandates all covered financial institutions collect and verify from certain non-exempt legal entities specific information about the beneficial owners of the entity at the time a new account …

What is Bank due diligence?

What Is Due Diligence? Due diligence is an investigation, audit, or review performed to confirm the facts of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.

Why do we carry out CDD activities?

Why? You have to first decide whether a client or customer fits your established risk profile, before entering into a business relationship with them. You can only do this by undertaking the appropriate CDD measures. This ensures that identity thefts and any potential forgeries can be detected early on.

What is CDD EDD?

It is a rapid fire due diligence screening process. … The second step is Customer Due Diligence (“CDD”) which requires the bank to obtain information to verify the customer’s identity and assess the risk. If the CDD inquiry leads to a high risk determination, the bank has to conduct an Enhanced Due Diligence (“EDD”).

What is CDD process?

Customer due diligence is the process of identifying your customers and checking they are who they say they are. In practice, this means obtaining a customer’s name, photograph on an official document which confirms their identity and residential address and date of birth.

What is CDD in KYC?

Customer Due Diligence (CDD) or Know Your Customer (KYC) policies are the cornerstones of an effective AML/CTF program. Put simply, they are the act of performing background checks on the customer to ensure that they are properly risk assessed before being onboarded.

What is tipping off in money laundering?

‘Tipping off’ means (whether deliberately or inadvertently) letting a person (e.g. a client) know that their suspicious activity has been reported to an MLRO or to NCA. The likely result of this is that the person suspected will hide or destroy evidence, or themselves disappear.

What are high risk customers?

Higher Risk Customers are those who are engaged in certain professions or avail the banking products and services where money laundering possibilities are high. … Financial Institutions conduct enhanced due diligence (EDD) and ongoing monitoring for the higher risk customers.

What does a CDD analyst do?

A CDD analyst ensures that all required checks are made to prevent you from running unnecessary risks. If you omit to do these checks, you run the risk of hefty fines and reputational damage, as tackling money laundering and terrorist financing are high on the political agenda nowadays (Wwft).