The latest compliance obligations can be tough and confusing for the financial industry, which makes sticking to standards challenging for the sector. In any case, non-compliance has severe consequences, such as permanent bans or hefty fines. In this light, financial service providers must adhere to the Customer Due Diligence (CDD) checklist. According to global compliance guidelines, all financial service suppliers must perform ID verification during the onboarding procedure.
The customer due diligence for banks can change depending on the type of account and the client. For simplification, banking firms must implement a risk-based approach, allowing experts to calculate the level of risk associated with credentials. Hence, CDD for banks plays an important role in fraud prevention.
Customer Due Diligence for Banks: A Quick Insight
CDD is the procedure of obtaining ID credentials from consumers to evaluate any risk. This approach demands a full name, address, and government-issued records of the onboarding customer. This method also streamlines background checks. CDD is a critical component of the Anti Money Laundering (AML) approach, mitigating money laundering and terrorist financing cases actively.
In customer due diligence for banks, the system screens user names against several watchlists and financial databases. For instance, there is a Politically Exposed Persons (PEPs) list and criminal & terrorist background checks that discourage fraudsters from exploiting the organizations. This progressive approach also supports compliance with stringent KYC/AML requirements by global regulatory agencies such as the EU and FATF.
Improving the Compliance Structure with Customer Due Diligence for Banks Checklist
It is important to figure out a sustainable and reliable method to design an efficient due diligence checklist. A CDD checklist that banking service providers can go through to ensure efficient implementation of customer due diligence for banks procedures includes the following:
Mitigating Risks with A Basic Screening Process
Executing a basic ID validation procedure can facilitate active fraud prevention. This approach may include asking for Personally Identifiable Information (PII) such as full name, address, and government-issued documents (e.g., passport). Experts can also execute an address verification process by demanding their utility bills. This progressive approach can help banking service providers to discourage identity fraud and other forgeries. Professionals must also examine the information regarding any Ultimate Beneficial Owners (UBOs). Performing AML checks can help service providers identify Politically Exposed Persons (PEPs).
Vetting All Third Parties to Streamline the Process
Executing the complete customer due diligence for banks process is a challenging task. To validate users’ credentials, collaborating with third-party vendors can modernize the process. This step must be taken after doing proper research on service suppliers and due diligence approaches.
Assessing the Gap for Enhanced Due Diligence System
To identify and discourage high-risk clients, the advanced version of CDD is essential, which is enhanced due diligence. EDD procedure asks for more information to perform risk assessments. Banks can perform Enhanced due diligence perpetually to monitor clients’ credentials and detect any suspicious activities early on. This approach requires establishing some warning signals to identify threats and risks in real time. Following are some notable alert signs:
- Users’ transactions
- Occupation
- Address
- Nature of exchanges
The above red flags can empower experts to examine if the client is an accomplice in money laundering or terrorist financing cases. Hence, the implementation of Enhanced Due Diligence will facilitate experts to assess any risks and take appropriate actions immediately.
Facilitating Compliance with Data Protection Regulations
The application of customer due diligence for banks is one part of their duties. Banking firms must offer unbeatable data security to provide a positive experience to their clients. In this light, General Data Protection Regulation (GDPR) also demands all businesses (that gather customer information) to guarantee data protection.
Ensuring Unbeatable Data Safety
Banking service providers must make sure all user data is safe from external attacks and can be presented as evidence when required. The requirement to secure all CDD and EDD information is a smart approach from global regulatory bodies. This is important as any government agency can demand data in case of money laundering and corruption. Hence, according to customer due diligence for banks guidelines, all firms must provide solid proof of their consumers’ transactions.
Concluding Remarks
A customer due diligence checklist empowers banking firms to apply a comprehensive compliance procedure. In this case, customer due diligence for banks is a part of AML protocols. Working with a competent service provider can help banks benefit from customer ID verification services and CDD. This approach also facilitates compliance with KYC/AML obligations. Performing CDD also gives a competitive advantage to banks and helps professionals achieve their business milestones in a stress-free manner.