Nowadays it has become a crucial responsibility of banks and other financial institutions to verify their clients before taking them on board. Because in today’s fast pace environment. You can not guarantee that everyone is actually who they claim to be. Fraudsters and scammers are taking leverage of this steadiness occurring in life day by day. Thus, it has become a part of the process for banks to identify their clients’ authenticity to remain safe.  

What is meant by Client Due Diligence? 

Client Due Diligence (CDD) is a process that is carried out by banks and financial institutions to ensure the fact. That their clients are honest and transparent in their financial activities. It is a mechanism that strictly designe in order to avoid the chance of scamming. And falling a victim to fraud by fake people. 

Importance of KYC/CDD 

CDD process is essential to perform. It assists the banking sector and other financial institutions to assess the degree of risk attached to their client. For instance, during the onboarding process, the bank collects necessary information. Which may include the client’s name and address initially. CDD is a bit more detail analysis of a business entity. It means to continue on a regular basis as the long business relationship goes on between the client and the bank 

Critical Levels of Customer Due Diligence for Banks 

Standard Due Diligence in Banking Sector

There are three prominent dimensions of customer due diligence. One is the standard due diligence which involves the collection of information like the name and address of the client. The business nature, and the nature of transactions perform. The nature of the business can be useful to assess if the person involves in a legally allowed activity. For instance, if a person finds to indulge in selling cannabis products when it is prohibited to do so in a particular region. It individual will deem suspicious and the bank will inquire about him in detail.  

Enhanced Due Diligence in AML

Enhanced Due Diligence refers to a more advanced KYC due diligence process that includes a risk assessment. EDD create with high-risk customers and large transactions in mind. High-risk consumers and suspicious transactions put the banking sector in danger, yet CDD systems may miss them. As a result, businesses use EDD methods to increase identity assurance by taking a customer’s identity and addressing and analyzing the risk category. By detecting and probing high-risk customers and questionable transactions. EDD procedures reduce the possibility of money laundering and terrorist financing through organizations.

EDD is the most crucial form of due diligence in banking. Because the entities that are most vulnerable to suspicion, fall in this category. The banks and financial institutions ask for additional information from clients to do their verification. This information comprises the sources of income and. How are those sources justified in a legal manner. 

In addition to that, these clients checked on the lists of Politically Exposed Persons (PEPs). If their name appears on any of the warning lists, they are not given the privilege of being labeled as verified. Instead, they were held accountable for further investigations to look for suspicious activities. It may lead to money laundering crimes being discover thereafter. 

Improve Banking Due Diligence

The banking business is a fast-paced environment. This industry’s regulations and technologies are rapidly evolving. Financial crime legislation, in particular, must follow by large corporations. Customers with dubious actions or histories may set off heightened due diligence tools. To avoid penalties and maintain their reputation, high-risk corporations. Such as banks must follow the Enhanced Client Due Diligence program seriously.

How Client Due Diligence Process Perform

• The client is ask for relevant needed information by the banks to run a background check in accordance. With the sensitivity of the profile under consideration. The basic information need for verification is as follows:

• Complete name of the client as per the one state on the government-issue ID card. It allows the banks to eliminate the risk of fake identities.

• The address of the client demand to verify the authenticity of the residence so that the person can approach duly in case needed. Ignorance of this aspect may allow an individual to fool the bank by giving the wrong address so that he could not catch in case of fraud. Document Verification service is also use for this purpose.

• The e-mail ID and contact number have to keep in the record of the bank to notify. The client about essential aspects related to bank policies for customers. Any changes made in the rules and regulations with respect to serving business clients.

• The date of birth of a client is also required by the banks. This seems to be a piece of petty information but at times. It allows the banks to verify the originality of the personal documents of the client. For instance, the eligibility of a person to do business with the bank requires a certain legally allow age. Before that, the bank can not entertain a client as it may cause trouble

• In the case of a business entity, in addition to the above mention information, the bank will demand the essential documents. It guarantees the due existence of the business. For instance, in the case of a public limited entity. The bank will ask for a memorandum of association and a certificate of commencement for business. Similarly, in the case of a private limit business entity, the bank will require the certificate of incorporation. It issues by the government as a confirmation of the validity of that business entity. 

Final Thoughts

Client due diligence has proven to be a vital tool for improvising bank operations. it has widely eliminated the risk of Identity theft and corruption-related activities carry out like money laundering. These types of processes should encourage on a macro level to make the corporate environment safe and trustworthy in the long term.