21 Jan Due Diligence – Best Practices
So you want to know what Customer Due Diligence (CDD) is and why is it of paramount importance for any financial institution.
In a layman’s language, CDD means knowing your customer completely. This would help you to analyze and investigate any associated risks such as Industry or Geography risk which can be managed effectively. The end goal of CDD is to protect any business from being used intentionally or unintentionally as a vehicle for laundering money.
There might be instances where the customer might pose a higher risk and to evaluate the situation properly one might need additional pieces of information and this process of seeking additional information is termed as Enhanced Due Diligence.
Below are few worldwide accepted best policies that can help you perform better due diligence.
- Always perform CDD before entering into an economic relationship.
How to do this? Try to get a basic understanding of the customer, verify the basic documents from the companies’ house or any other valid source. Check for elements such as name or any previous names, country of incorporation, the line of business etc.
- While performing due diligence it is important to collect all the necessary information from valid documents/sources. For example when on-boarding a trust one should identify and verify all the parties such as Settlor, Trustees, Protectors, and beneficiaries. No vital information should be left out.
Having a comprehensive process for documenting CDD information is not only highly effective, but it also mitigates any potential risk. These records have to be stored properly for any future regulatory obligations.
- Check if EDD is required
It is important to carry out the correct processes to ascertain whether EDD is necessary. EDD calls for additional information, hence it is very crucial when collecting the documents. This can be performed on an ongoing process, as customers might move from a low-risk zone to a high-risk zone over a period of time.
For example, most jurisdictions require politically exposed persons (PEPs) to go through the EDD process. Other factors that require EDD might depend on below (few examples)
- Location of the beneficial owners/entity
- Occupation of the beneficial owners
- Nature of Business
- People Involved (PEPs)
- Subscribing to tools
To discover details about the shareholders or the board of directors of the entity it is necessary to subscribe to tools that provide information about shareholders, directors etc. This ensures that you are meeting various KYC and Anti-Money Laundering (AML) regulatory requirements
Compliance teams today should be grateful to the companies who make life easier for them to gather information, and one such solution is the KYC Lookup search engine which has access to over 100 million company records from more than 110 jurisdictions around the world.
The solution enables real-time identification and verification of company records through official registries. Using the unique company registration number, the KYC Lookup API pulls the data of the respective entity and the details of the company such as full legal name, date of incorporation, registered address and a link to the specific company registry are made available.
To learn more about KYC Lookup, please do visit the link below and get a feel of how we simplify the information retrieval process.
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