CDD en KYC, what is the difference?
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In short
Customer Due Diligence (CDD) and Know Your Customer (KYC). Two terms that are often used interchangeably but are actually different from each other. What is the difference between KYC and CDD? In brief, CDD is part of KYC. Customer Due Diligence is a sub-process of the Know Your Customer process in which you determine who your client is. This will be discussed further in this blog.
Customer Due Diligence (CDD) and Know Your Customer (KYC) are somewhat similar but are not the same. The similarity is they both have an extensive identification obligation.
Know Your Customer
Know Your Customer involves finding out certain information about your customer such as name, date of birth, address, and establishing their identity. Know Your Customer is one of the most important and far-reaching parts of the Wwft. The purpose of the Know Your Customer Process is for you to gather sufficient information about your client to determine the level of risk the client poses before doing business. What exactly constitutes ''sufficient information'' is often debated and is not clearly stated in the Wwft.
The KYC process must be completed before you enter into a business relationship with your client. But you also need to complete the KYC process before you can open an account for your client, purchase an investment product, or take out a mortgage.
Customer Due Diligence is about weighing risks when doing business with a client under the Wwft. KYC is about ensuring the quality of client advice under MiFID and MiFIR.
Customer Due Diligence
Once your client's standard information is known and documented, it is important to start verifying this information. The first step is to request and verify the client's identification. Once this step is completed, certain checks must be made. Some of these are stipulated by law, such as finding out the UBO and checking the PEP and sanctions lists, but you can also perform more far-reaching checks such as taking country risk into account and, for example, whether someone has been declared incompetent as a director. After all, the idea behind the Wwft is that you have to make a risk assessment of your client. The more information you have about the client, the better you can make this risk assessment.
CDD is one of the first steps in tackling anti-money laundering and terrorist financing. Financial service providers have an important role in this to pick up any signals as early as possible and report any unusual transactions to FIU Netherlands. Each institution determines its own CDD policy, but this policy is always based on the Wwft.
By maintaining a good CDD policy you help prevent integrity risks, but it also prevents you from engaging in harmful relationships with clients that could damage the trustworthiness and reputation of your company.
Should you have a long-term relationship with your client, it is important that you conduct the KYC process regularly to ensure that the data is and remains current. In short, you should continuously monitor your clients for any changes. An example of this is joining a political office that suddenly puts your client on a PEP list. But the changes can also be on an international level: for example, a country receiving a different risk classification.
The Customer Due Diligence and Know Your Customer process have been automated by SCOPE FinTech Solutions.
CDD On Demand
Using SCOPE FinTech Solutions' CDD On Demand solution, you can very easily simplify the client screening from the CDD process, saving a lot of time. Instead of you going to check your clients yourself against certain criteria, this process is completely taken out of your hands and done by CDD On Demand. The only thing you have to enter is your client's name and date of birth, if any, and it will immediately check whether your client is on a PEP list, has negative media coverage, is on a sanctions list, but also whether your client comes from a high-risk country.
It's also possible (for Dutch companies only!) to identify who the UBO is from a legal entity, and it is possible to place certain searches on a so-called monitor list, allowing your clients to be checked daily for any changes. After performing a compliance check in the CDD On Demand solution, you will receive a certified report for your administration as proof in case of an audit from a financial regulator. Boarding is easy without a long and expensive contract.
Better be safe than sorry!