A More Holistic Approach to CDD (Customer Due Diligence)

Financial fraud and CDD

According to a Thomson Reuters KYC global survey, a majority of financial institutions think that enrolling new corporate customers has grown more difficult and takes longer. This stems from an increasingly stringent KYC regulatory environment and outdated CCD practices that are unable to keep up with the changing realities of the global financial system. In this article, we map out a more holistic customer-centered approach to CDD and EDD (Enhanced Due Diligence) for fostering a better relationship with customers and reducing the transaction costs of financial activities. Continue reading to learn more.

The Customer-centric Approach

Not knowing your customer in today’s financial environment carries enormous risks. However, this doesn’t mean you should adopt a one-size-fits-all strategy when it comes to such aspects as KYC remediation, transaction surveillance and data assessments. Here, we present some methods to improve CDD measures and reduce activity transaction costs.

Segmentation of CDD Measures

A smart way to improve CDD is to create automated tiers for customers based on their perceived risk. The level of risk can be assessed by their background, needs, and past activities. Ascertain the identity of your potential customers, and gain information on their previous financial activities before entering into a business relationship. Ask them about their expected level of transactions and method of payments. Based on this, adopt a more flexible form of CDD. Internal audit teams can be used to test the robustness the institution’s controls and procedures.

Low-risk customers would have to go through a simplified due diligence (SDD) process. High-risk individuals, meanwhile, would be subject to enhanced due diligence (EDD) measures. Since customers have the potential to transition into higher-risk categories, smart A.I can be used to augment continuous due diligence assessments based on real-time data of transactions for reclassification of an individual’s risk levels and timely submission of a suspicious activity report (SAR) to concerned authorities.

For some businesses, another feasible form of segmentation would be set account tiers for customers instead. An account with higher transaction limits would be subject to more stringent CDD and vice versa.

Collaborative CDD (CCDD)

Greater coordination and collaboration between different financial services providers can significantly reduce the costs of CDD by eliminating data repetition and foster a better end to end case management. Furthermore, it can help detect high-risk customers early by allowing institutions to cross-check data from multiple sources to ascertain any discrepancy in the information provided to them. Hidden benefit structure can be more easily detected due to greater information flow between the various institutions. For genuine customers, this approach will improve their satisfaction by reducing the time spent in form filling and identity authentication. Biometrics, artificial intelligence, and distributed ledger technology are all helping pave the way for new opportunities for information sharing and collaboration between various institutions. The financial software company, Actimize is the most notable example of this.

Closing Note

Despite the potential of adopting such an approach, the actual implementation remains challenging. Various laws, policies, and regulations, while aiming to address valid policy objectives, also create information-sharing barriers and unneeded complexities.  APN consulting helps companies successfully navigate the area of CDD and AML compliance by connecting them with the best talents in the industry. For effective solutions to your talent acquisition needs in the industry, get in touch with our team of experts by emailing us at contactus@apnconsultinginc.com.

A More Holistic Approach to CDD (Customer Due Diligence)

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