What is Customer Due Diligence?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

Customer Due Diligence is how financial organizations collect and assess relevant information about a customer or potential customer. Its goal is to reduce the risk of a financial institution when dealing with a particular company or individual by analyzing data from a variety of sources.

Customer Due Diligence (CDD)

Customers provide their full name, photo ID, address, phone number, email address, occupation, tax identification number, and other information to businesses in order for them to verify that they are who they claim to be.

  • Customer Due Diligence measurements should include additional identifying information about the customer’s business model, funding source, and beneficial ownership.
  • Customer Risk Profiles and Risk Assessments – Customers are classified into different risk levels (often low, medium, and high) based on their identity, location, and type of business to demonstrate the level of money laundering risk they pose.
  • The amount of due diligence required is determined by the consumer’s risk profile.
  • Compared to low-risk customers, high-risk customers require a more thorough due diligence procedure.
  • After a consumer is signed up, the due diligence process continues. A continuous monitoring system should be used in Customer Due Diligence efforts to monitor higher-risk consumers, shady transactions, shifting customer profiles, etc.


What is Customer Due Diligence?

Customer Due Diligence refers to the process by which financial institutions obtain and evaluate relevant data on a client or potential client. Analyzing data from multiple sources aims to reduce a financial institution’s risks when interacting with a specific business or individual.

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