Financial institutions are required to perform Customer Due Diligence (which involves various identity and background checks) to ensure whether the customers are who they claim to be. It is designed to help financial institutions and banks get a clear picture of the risk profiles their customers are associated with. CDD is the process of assessing the financial risks of existing or potential customers. This investigation is not restricted only while building new business relations but also for the continuous monitoring of the existing ones. It happens to be one of the core components of the risk-based AML approach, if executed diligently it can detect any unusual activity about the customers and help prevent numerous financial crimes. 

Regulatories to comply with:

• Customer identification: Financial institutions should recognize their clients by acquiring data, including name, photographic ID, address, and birth details from an authentic source.

• Beneficial ownership: The beneficial owner of the company must be identified in circumstances where this is not the client while carrying out these measures to help setting up control of the company.

• Business relationship:  Post establishing all the identifications successfully, the institutions and banks must conduct checks to understand the nature of the business and its transactions.

Why is it needed?

As we know, banks and financial institutions are highly critical when it comes to financial risks, it becomes essential to assess the risk profiles of the customers before onboarding them. There can be so many risks for example money laundering, terrorist financing, cyber frauds, and likewise. Money laundering is not restricted by drug cartels alone, every other criminal is getting the hang of it.

Customer Due Diligence is not only important for detecting the risk factor but also to comply with various laws and regulations laid down by different legislations across the world. Non-compliance with the laid rules damages the reputation plus the credibility of the financial institutions. According to global estimates, the banks have suffered fines worth more than $32 billion, the majority of which was leveled against U.S. firms.

Process of CDD

Customer Due Diligence typically begins with the identification of the potential customers and their businesses. Mostly, the companies rely on a government-issued id for verification purposes instead of having so many alternatives. This process is done with the aim of getting all the information necessary before building any business relations. 

After acquiring the information which usually varies with every jurisdiction, data screening is performed. The importance of this particular step can be ascertained since the firms decide the risk profiles of different customers from low-to-medium risk and assign them to the risk pools accordingly. Individuals likely to have higher risks are required to go through an extra AML approach like Enhanced Due Diligence. Basically, the data received is run through various online databases that allow name screening on platforms like PEPs, government checklists, and more. Therefore, post evaluating the risk pools the individuals are associated with, the appropriate due diligence is performed. Basically, individuals with minimal risk and low transactional value are allowed to establish business relations, whereas individuals possessing higher risks might be required to go through Enhanced Due Diligence formalities.

Remember! CDD is not finished after evaluating the risk profiles before onboarding new individuals, It has got more to do! Ongoing monitoring is required since the individual’s risk profiles do not remain constant and there is always a chance of them getting into the government checklists. Also, there are chances of them committing fraud in the future or maybe doing high transactions. Therefore, continuous monitoring is essential to avoid any financial crime that might take place with poor attention to all the activities going on.

Problems financial institutions face:

• Time Consuming: Findings have revealed that it takes banks 48 days on average to onboard a new business client. Plus, even after that, it fails to provide a smooth customer experience. As per some other findings, clients were fed up with the onboarding procedure since they were contacted eight times a day on average. This led 13 percent of the 89 percent of corporate treasurers who had a bad experience with the whole KYC process to change banks. This is absolutely not a positive outcome for the banking industry for losing customers to lengthy and time-consuming procedures.

• Expensive: According to the Thomson Reuters study, banks are already spending $60 million alone to comply with all the KYC and Due Diligence activities, and still it lacks efficiency. Plus, the dangers and costs of endeavoring to meet FinCEN’s new regulatory necessities with the frameworks and cycles banks presently have in place are even higher.

• The cost associated with the army of staff members: As the governments come up with new compliance programs all the time, a bigger workforce is always needed to perform the needed activities. There’s no guarantee that more people will ease the process and not make it problematic.

• Non-Compliance penalties: Even after spending hundreds of million dollars to fulfill all the KYC, CDD procedures, still there have been instances of non-compliance leading to terrible fines.

• Human error: It is natural that humans are susceptible/ prone to errors. While executing all the CDD procedures, that is manually verifying and going through tons of paperwork can naturally leave room for human error. It could get monotonous and be tedious at the same time. There is a need for well-trained staff members to carry out the task efficiently which means extra wages. To keep up with the constantly changing AML compliance, the firms also need to provide continuous training to their staff members.

With so many troubles and the manual approach to comply with various AML/KYC regulations, it becomes extremely important to adopt an automated version of the same. Using technology will have its own advantages. It would result in accuracy, saving time and money, reduction in the number of workers required to perform it manually. Moreover, when the world has evolved in many ways in relation to technology, it would be impractical to not utilize it. When it comes down to looking for an appropriate solution that caters to the different requirements in conducting CDD, AZYO is everyone’s first choice. Well, there are certainly no reasons why AZYO wouldn’t be anyone’s very first go-to option. It is the market leader in Automated Identity Verification as the solution leverages cutting-edge technologies.

With the power of Convolutional Deep Neural Networks, Powerful Graphical Processing Units, Advanced Machine Learning Algorithms, AI-Driven Automation, Optical Character Recognition, Blockchain, Facial Recognition & Liveness Detection, AZYO is consistently evolving to verify identities and prevent fraudsters.

AZYO’s facial recognition technology can identify people in pictures, video, or in real-time. It includes both face identification and face verification (also called authentication). It’s really easy to spoof a face recognition system through facial pictures, such as portrait photographs. A highly secured system needs liveness detection in order to prevent such spoofing attacks. AZYO’s Liveness detection algorithms analyze images or videos and decide whether they come from a live person or a fake. To cope with various presentation attacks, AZYO’s most promising liveness detection combines technologies like motion and/or texture analysis, as well as Artificial Intelligence & Machine Learning.