What is Customer Due Diligence | What is Risk-Based Approach | CDD Documentation - AML/KYC Tutorial
Summary
TLDRThis video script delves into the concept of Customer Due Diligence (CDD), a crucial process for companies to assess and mitigate risks associated with new or existing customers. It explains the importance of CDD in preventing financial institutions from being exploited for money laundering and terrorist financing, as recommended by the Financial Action Task Force. The script outlines key steps in CDD, including verifying customer identity, identifying beneficial owners, understanding business purpose, and ongoing due diligence. It also emphasizes the significance of a risk-based approach and the types of documentation typically required.
Takeaways
- 📚 Acronyms like KYC, AML are commonly used in the industry to refer to Know Your Customer and Anti-Money Laundering regulations.
- 🌐 The video aims to enhance viewers' understanding of AML and Customer Due Diligence (CDD).
- 🔍 CDD is the process of gathering information on customers to assess the risks of doing business with them.
- 🛡️ CDD is carried out to protect financial institutions from being used for money laundering and terrorist financing.
- 📈 The Financial Action Task Force (FATF) sets guidelines for CDD, including identifying and verifying customer identities and beneficial ownership.
- 🏦 Financial institutions are required to perform CDD when establishing business relations or conducting transactions over a certain threshold.
- 🔑 Key measures for CDD include verifying customer identity, identifying beneficial owners, understanding the business relationship, and ongoing due diligence.
- 📋 Documentation for CDD may vary but often includes identity documents, proof of address, and information on beneficial ownership and business activities.
- 📉 A risk-based approach tailors the level of due diligence to the risk presented by the customer, allowing for more or less scrutiny as necessary.
- 🏷️ Understanding the customer's products and services is crucial for assessing eligibility and risk appetite.
- 🔄 Ongoing due diligence is essential to ensure that transactions are consistent with the customer's profile and the institution's knowledge of them.
Q & A
What is an acronym and why are they popular in certain industries?
-An acronym is a word formed from the initial letters or groups of letters of words in a name or phrase, often used for brevity in technical or specialized fields. They are popular in industries like finance and compliance because they help to quickly communicate complex concepts or standards, such as AML for Anti-Money Laundering.
What does KYC stand for and what is its purpose?
-KYC stands for 'Know Your Customer.' It is a process used by financial institutions to verify the identity of their clients to prevent fraud, money laundering, and terrorist financing.
What is Customer Due Diligence (CDD) and why is it important?
-Customer Due Diligence (CDD) is the process by which companies gather sufficient information about a new or existing customer to assess the risks of doing business with them. It is important to protect financial institutions from being used for money laundering and terrorist financing purposes.
When is CDD required according to the script?
-CDD is required when establishing business relations, carrying out occasional transactions involving amounts over a certain threshold, dealing with entities in high-risk foreign countries, or when there is a suspicion of money laundering or terrorist financing.
What does the Financial Action Task Force (FATF) recommend regarding CDD?
-The FATF recommends in Recommendation 10 that financial institutions should take measures to determine they know who their client is before entering into a business relationship, which includes identifying the customer, verifying their identity, and understanding the ownership and control structure of the customer.
What is the purpose of a risk-based approach in CDD?
-A risk-based approach in CDD allows companies to identify, assess, and understand the money laundering and terrorist financing risks associated with their customers. It enables them to adjust the level of due diligence required in line with the risk presented by the customer.
What are the key components of CDD requirements mentioned in the script?
-The key components of CDD requirements are identifying the customer's identity, beneficial ownership, and the products and services provided by the customer.
What types of documents are commonly used to verify customer identity in CDD?
-Commonly used documents for verifying customer identity include certificates of incorporation, articles of memorandum, registration and business address, full name, photographic ID, address, and birth certification for individuals.
How does a financial institution determine beneficial ownership for CDD purposes?
-Beneficial ownership information should be determined in line with the risk presented by the customer. Higher risk customers may require a 10% beneficial ownership threshold, while low or medium risk customers may require a 25% threshold.
What documentation can be used to understand the products and services offered by a customer?
-Documentation such as articles of memorandum or association, annual reports, and information from local registries highlighting SIC or NAICS codes can be used to understand the products and services offered by a customer.
Why is ongoing due diligence important in the context of CDD?
-Ongoing due diligence is important to ensure that the transactions conducted throughout the business relationship are consistent with the institution's knowledge of the customer, their business, and risk profile, including the source of funds.
Outlines
🔍 Understanding Customer Due Diligence (CDD)
This paragraph introduces the concept of Customer Due Diligence (CDD) and its importance in the financial industry. It explains that CDD involves gathering information about new or existing customers to assess the risks associated with doing business with them. The process is crucial for financial institutions to protect themselves from being used for money laundering or terrorist financing. The paragraph also outlines the regulatory obligations behind CDD, as stipulated by the Financial Action Task Force (FATF), which includes verifying customer identity, identifying beneficial owners, understanding the business relationship, and conducting ongoing due diligence. The video encourages viewers to subscribe for more content and suggests leaving comments for future topic suggestions.
📚 Key Components and Documentation for CDD
The second paragraph delves into the specifics of what Customer Due Diligence entails, including the identification of the customer, beneficial ownership, and the products and services provided. It discusses the risk-based approach to CDD, where the level of due diligence is adjusted according to the perceived risk of the customer. The paragraph emphasizes the importance of evaluating each customer individually rather than applying a blanket policy. It also highlights the types of documentation that might be required for CDD, such as certificates of incorporation, articles of memorandum, registration details, and identification documents for individuals. Additionally, it touches on the need to understand the customer's business activities and the relevance of this information to the financial institution's risk appetite.
Mindmap
Keywords
💡Acronym
💡KYC Lookup
💡AML
💡Customer Due Diligence (CDD)
💡Financial Action Task Force (FATF)
💡Beneficial Owner
💡Risk-Based Approach
💡Ongoing Due Diligence
💡Threshold
💡Documentation
💡Regulatory Obligations
Highlights
Acronyms like AML, KYC, and ABC are commonly used in the industry but may be confusing to outsiders.
The video aims to enhance knowledge in the fight against money laundering through AML-related content.
Customer Due Diligence (CDD) is the process of gathering information on customers to assess business risks.
CDD is required to protect financial institutions from being used for money laundering or terrorist financing.
Local laws and the Financial Action Task Force (FATF) recommend CDD measures for new and existing business relationships.
CDD involves identifying the customer, verifying their identity, and understanding the ownership and control structure.
Financial institutions must be satisfied that they know who their client is before entering into a business relationship.
Ongoing due diligence is necessary to ensure transactions are consistent with the customer's profile and risk.
A risk-based approach allows companies to adjust the level of due diligence according to the customer's risk.
Documentation for CDD varies based on entity type, jurisdiction, and customer risk rating.
Examples of documents for customer identity verification include certificates of incorporation and photographic IDs.
Beneficial ownership information should be determined based on the risk presented by the customer.
Understanding the customer's products and services is key to assessing eligibility and risk appetite.
Documentation such as articles of memorandum or association can confirm the customer's products and services.
The video provides a basic introduction to CDD, its requirements, and commonly used documents.
Viewers are encouraged to share their interpretation of customer due diligence in the comments section.
The video concludes with a reminder to like, subscribe, and watch more for further insights.
Transcripts
in the world that we live in today
everyone likes an acronym
whether it's abc kyc or aml
but what do they mean to people outside
of the industry
hello and welcome to another kyc lookup
video
where we bring you aml related content
to help you
enhance your knowledge in the fight
against money laundering
today we are going to explain what is a
customer due diligence
when is it required and what are the
most commonly used documents
but before diving into today's video be
sure to subscribe
so you don't miss out on any future
videos oh
and don't forget to leave us a comment
with any suggested topics you would like
us to cover in the future
so what is customer due diligence
customer due diligence or cdd as it is
also known as
is the process and procedures companies
follow to gather sufficient information
on a new customer or existing customer
and to assess the risks of doing
business with them whether it's at the
start of the relationship
or once established why do we carry
out the customer due diligence cdd
is carried out to protect the financial
institution
entering the new relationship being used
directly
or indirectly for money laundering and
terrorist financing purposes
it is also set out in local law
following the recommendations of the
financial action task force
that customer due diligence measures
should be undertaken when
establishing business relations carrying
out occasional transactions
these might involve amounts of money
over a certain threshold
or entities in high risk foreign
countries there is a suspicion of money
laundering or terrorist financing
or the financial institution has doubts
about the vericity
and adequacy of the previously obtained
customer identification
data what are the regulatory obligations
behind cdd
as the financial action task force
highlights in recommendation 10
financial institutions are required to
take enough measure
to determine they are comfortable and
satisfied that they know
who their client is before entering into
a business relationship
in order to satisfy this recommendation
financial institutions should take the
following measures
identifying the customer and verifying
that the customer's
identity using reliable independent
source documents
data or information identifying the
beneficial owner
and taking responsible measures to
verify the identity of the beneficial
owner
such that the financial institution is
satisfied that it knows who the
beneficial owner is
for legal persons and arrangements this
should include financial institutions
understanding the ownership and control
structure of the customer
understanding and as appropriate
obtaining information on the purpose and
intended nature of the business
relationship
conducting ongoing due diligence on the
business relationship
and scrutiny of transactions undertaken
throughout the course of the
relationship
to ensure that the transactions being
conducted are consistent with the
institutions knowledge of the customer
their business and risk profile
including where necessary
the source of funds what is a risk-based
approach
and when does it apply a risk-based
approach means companies should identify
assess and understand the money
laundering and terrorist financial risks
of their customer this is determined by
evaluating
each individual customer on their own
merit
and not using a rule-based approach
where all customers
are treated the same companies should
take into account
a risk-based approach at the time of
setting up their aml policy and
procedures
in order to have an effective foundation
for their anti-money laundering
and counter financing terrorism
programme most importantly
by having a risk-based approach
companies are able to adjust the level
of due diligence required in line
with the risk presented by the customer
what documentation do you need to carry
out the customer due diligence
although there is no set list of
documentation or information required
as it varies based on the entity type
jurisdiction of where the company is
registered in
or being serviced from as well as the
risk rating given to the customer
however we can look at the key
components we need to look out for
customer identity beneficial ownership
products and services provided some of
the documentation used to cover customer
identity could be
certificate of incorporation articles of
memorandum
registration and business address if the
customer is an individual
information such as full name
photographic id address and birth
certification would be required
beneficial ownership information should
be determined in line with the risk
presented by the customer
meaning the higher the risk lower the
threshold
for example a higher risk customer
should require a 10
beneficial ownership whereas a low or
medium risk customer
may require a 25 threshold
documentation used to determine the
ownership can be
ownership structure share registry
annual report in the scenario where the
customer doesn't have ultimate
beneficial owners meeting the threshold
it will require to identify the most
senior controlling party
with the day-to-day control of the
company the last key component of
understanding the product and services
offered by the customer
this information is key in order to
understand if the customer is eligible
to accept it as your client
or to understand if it fits with your
risk appetite
documentation used to confirm this item
can be
articles of memorandum or association
annual report may highlight this
information
local registries will highlight sic
or the naics code
okay let's recap so what is customer due
diligence
customer due diligence or cdd as it is
also known as
is the process and procedures companies
follow to gather sufficient information
on a new customer
or existing customer and to assess the
risks of doing business with them
whether it's at the start of the
relationship or once established
where does the cdd requirement originate
from
financial action task force highlights
in recommendation 10
financial institutions are required to
take enough measure to determine they
are comfortable
and satisfied that they know who the
client is
before entering into a business
relationship
the key components of the cdd
requirements are to identify the
customer identity beneficial ownership
and products and services provided
well there you have it a basic
introduction to what is customer due
diligence
when is it required and whether the most
commonly used documents
please tell us in the comments section
what is your interpretation of customer
due diligence
thank you for watching the video and if
you made it this far
don't forget to like and subscribe to
watch more amazing videos
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