Simplifying Onboarding through Customer Due Diligence and KYCMarch 19, 2019
The process of KYC or Know Your Customer is a well known cleansing practice from around the world. Which sees much of its use in the financial sector, where the identity of an individual is verified before the commencement of any business activity. However, CDD or Customer Due Diligence is also a very important phrase that should be equally known about. Actually KYC has been associated with Identity Verification in particular, whereas CDD KYC or just CDD carries a more holistic approach to knowing and utilizing the information about a customer. This is specially important for Financial Institutions to implement CDD during the onboarding stage, when establishing a business relationship. Let’s look at how CDD streamlines onboarding.
Background into CDD and KYC
The truth is that CDD-Customer Due Diligence and KYC – Know Your Customer are used quite interchangeably, however there are significant differences in both. Regulations call for a procedure to be implemented by banks that help them better know and understand their customers/clients. In order to facilitate that request, a measure of Know Your Customer was established. The procedure of getting to know your customer is not as straightforward for all types of customers. Especially considering all this started keeping in mind financial institutions. The financial sector gives importance to risk and associates it with customers accordingly. Hence, different levels of information are required to vet the identities of individuals with varying levels of risk. Hence the formation of CDD or Customer Due Diligence. CDD does not replace KYC but is a subset of the greater KYC mechanism. This also includes SDD and EDD measures.
CDD for Mandatory Diligence at Onboarding
Conducting customer due diligence is a fundamental aspect for any business operating today. Especially for highly regulated institutions like banks and the kind covered under most anti-money laundering acts. A high risk environment such as a financial institutions that deals with customers from all over the world. The applicability of CDD measures becomes a must practice to perform.
Performing Customer due diligence helps financial institutions and other regulated institutions to identify their clients and ascertain relevant information pertinent to their identity. Also ascertain information pertinent to conduct financial business with. How this information streamlines onboarding is neat. Basically, the parent institution has more CDD KYC information to go about with that can be utilised to make more decision early on. As this information is clear and decisive, decisions regarding the suitability of a customer, their ideality and persona can be made quicker. Not only this helps streamline the decision making process but also ensure optimal manpower allocation to the next candidate undergoing CDD, who is awaiting approval. The new information is not only good to the company but also from a regulatory standpoint.
The implementation of necessary protocols like that of the CDD and other diligence practices are the need of the hour that should be implemented as soon as possible for regulated entities. If companies realise they don’t know their customers enough, implementing CDD KYC might just help them through their situations and not only increase productivity but also it’s regulatory position.