Risk Intelligence
Effective, efficient Customer Due Diligence (CDD) is an essential part of any risk management strategy. Thorough CDD helps you understand who your customers are and exactly who you are doing business with. Discover why CDD matters and access our checklist of vital CDD element.
What is CDD and why does it matter?
CDD is the process of checking and verifying customer data to more fully understand the range of potential risks associated with any new or existing customer.
CDD matters, because identifying potential risk early in the game can substantially reduce your exposure to fraud and other forms of financial crime.
Effective due diligence should be rigorous and go beyond basic checks to build a holistic picture of each customer, but at the same time, it is important that it delivers a smooth, seamless and positive customer experience.
All regulated entities need to conduct CDD that includes verifying the identity of customers, monitoring and reporting suspicious transactions, and more.
Failure to detect potential risk early can result in significant regulatory, financial and reputational damage, so conducting thorough checks is essential.
Common challenges
Many businesses face some common challenges when implementing CDD processes, including:
- Data challenges
Customer information may be incomplete or inaccurate, making it impossible to complete thorough CDD. Data should be comprehensive, accurate, structured and de-duplicated.
- Inadequate technology
Manual processes can be time-consuming and error-prone. Without the right technology, you may struggle to complete CDD in a timely manner, slowing the pace of business and contributing to negative customer experiences. The right technology, however, can streamline and automate time-consuming tasks, freeing up time for higher value-added activities.
- Resource constraints
Limited budgets and finite human resources can create additional challenges for compliance teams who are tasked with completing CDD quickly and effectively.
- A complex and evolving regulatory landscape
Staying up to date with evolving regulatory requirements can add layers of complexity to the CDD process.
The good news is that, with the right data, technology and trusted human oversight, you can effectively overcome these challenges.
Your CDD checklist
Our checklist can help you build an effective CDD framework that is both accurate and efficient. While this is not an exhaustive list, here are some of the most vital elements to include:
- Screening
Screening is an important first step that helps you identify potential financial crime threats and understand exactly who you are doing business with.
Screening against trusted, accurate data can help you uncover hidden risks and remain compliant with global KYD, AML, counter terrorism financing and other regulations.
Customers should also be screened against global sanctions lists, but it is worth stressing that the sanctions landscape is ever-changing and can be complex to navigate. Nonetheless, compliance is mandatory.
- EDD
Where heightened risk is suspected or detected, initial screening may not be enough and EDD becomes necessary.
EDD reports deliver vital information about your most critical or risky relationships and can be crucial when deciding whether to engage with a new customer.
Robust EDD should also include verifying the ultimate beneficial owners (UBOs) of entities and the source of wealth (SoW) of individuals.
- Identity verification
Verifying the true identity of your customers – both individuals and entities – is essential for reducing the incidence of fraud and building trust in your brand.
Identity fraud is a growing problem across the globe, meaning that it is necessary to verify the true identity of each customer before engaging with them. Identity verification can help you stay compliant with KYC requirements in a rapidly evolving regulatory landscape.
- Ongoing monitoring
Finally, remember that CDD is not a “one and done” process. Risk is dynamic, which means that ongoing monitoring is needed to identify any new threats before they escalate.
Compiling regular due diligence reports can help to flag suspicious activity, which in turn allows you to respond to changing risk promptly and remain up to date with your compliance obligations.
Find out more about our suite of screening solutions here:
LSEG Managed Screening
Customer Risk Screener
Due Diligence Reports
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