To put a stop to financial crimes like money laundering and terrorist financing, regulatory bodies globally are adopting effective ways. In this tech-driven age, businesses, and customers no doubt can benefit a lot but it has opened ways for the various scams as well. Financial watchdogs encourage CDD checks for banking to comply with AML and CFT regulations. While laws do help in controlling monetary scams across various financial institutions, however, these standards are used to enhance cost and compliance protocols.
Why is Client Due Diligence important for Banks?
Traditional client due diligence checks reflect that AML regulations are complicated and not properly followed. It means that it is difficult for banks to adhere to CDD checks.
With inadequate AML measures, financial organisations can not avoid the requirement for extensive CDD procedures. If the AML system does not adhere to standard regulations, financial institutions can face adverse non-compliance fines.
CDD(Client Due Diligence) checks for the banking sector include KYC (Know your customer) and AML (anti-money laundering) measures. It is employed to help banks and financial institutions to verify their consumers, to authenticate that they do not exist on any banned lists, and to identify their risk system.
CDD checks for the banking sector verify customers and identify their validity. The banking institutions properly go through that consumers are threat-free before they are onboarded. It reflects acquiring a customer’s personal details and matching them against ID documents that authenticate their true identity.
CDD Checklist – 5 steps to Enhance CDD checks for the Banking Sector
Following is a 5 step checklist to make sure that companies follow the standard regulations in order to make sure they are doing it the best way possible:
Step 1: Identify Customer Real Identities
In this step, businesses carry out CDD(Client Due Diligence) checks prior to building the business-consumer professional relationships to verify the potential risks beforehand. Establishing barriers to limit fraudsters from accessing customers’ accounts helps in avoiding criminal activities before they even start.
It can be performed by examining the current location and ID of potential customers and acquiring comprehensive know-how of their professional activities. Considering the ever-increasing online fraud, gaining more data, or performing extra ID protocols in CDD checks for the banking sector and other financial institutions is what companies are needed to do. This extended data incorporates the name, address, location, date of birth (DoB), ID documents, and third-party identification.
Step 2: Evaluate third-party Information Sources
Companies are required to fortify their business operations with the help of KYC banking and also use document verification prior to resourcing their work. It is important to choose these third parties wisely because the final liability of CDD(Client Due Diligence) checks relies on banks and not on the third parties.
Step 3: Secure your Information
This step is designed to make sure that information has been collected in a safe manner according to the KYC needs of the banks. While identifying a potential customer, before saving the data on online forums, one has to categorise their threat and verify what kind of customer they actually are. To keep personally identifiable information (PII) information secure, there are strict laws about how that information is gathered, secured, and shared. Saving customer information is important to avoid any reputational destruction.
Step 4: Exercise Necessary Additional Protocols
Apart from basic CDD checks for the banking sector, it is important for companies to measure if there are a requirement for EDD (enhanced due diligence) regulations. This could be an ongoing method, as customers always have the chances of becoming a high-risk profile, henceforth, carrying out regular customer due diligence for banks is what can protect companies from experiencing any adverse consequence.
Step 5: Make sure that you are Audit Ready
It is important for companies to keep their data record intact so that they can present them whenever they are required to. In this digital age, businesses are anticipated to keep the information saved in a digital format. Keeping the records of CDD checks and enhanced due diligence (EDD) for banks and other financial institutions of each customer, is important in case of future regulatory measures.
Keeping in view the increasing number of digital fraud, companies are responsible to perform security protocols that can save them from experiencing adverse results. CDD checks are the need of the hour for the banking sector to make sure that companies identify their customers. KYC CDD AML regulations are crucial for banks in order to protect their working operations.