CDD en KYC, what is the difference?
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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 means "Get to know your client". It is necessary to find out certain information about your client, such as name, date of birth, address and establish the clients identity. Know Your Customer is one of the most important and most drastic parts of the Anti Money Laundering Directive and Combating the Financing of Terrorism Act. The purpose of the Know Your Customer Process is that you collect enough information about your client to determine the level of risk the client entails before doing business. There is often discussion about what "sufficient information" entails, and this is not clearly stated in the Wwft.
The KYC process should be completed before engaging in a business relation with your client. But a KYC process should also be completed before opening an account for a client, buying stock for a client or before taking out a mortgage.
Customer Due Diligence gaat over het afwegen van risico’s bij het zaken doen met een cliënt in het kader van de Wwft. KYC gaat over het waarborgen van de kwaliteit van het advies voor de cliënt in het kader van de MiFID en MiFIR.
Customer Due Diligence
When the fundamental data of your client is known and documented, it is important to start checking this data. The first step is to request and verify the client’s ID. Once this step is complete, certain checks need to be performed. A number of these checks are legally determined, such as finding out the Ultimate Beneficial Owner and checking the Politcally Exposed Person list and sanction lists, but it's possible to carry out more extensive checks such as taking into account the risk countries or for example, whether someone has been declared incompetent as director. After all, the idea behind the AMLD is that you must 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 play an important role in anti money laundering because they can pick up signals early and report any unusual transactions to Financial Intelligence Unit. Each institution determines its own CDD policy, but this policy is always based on the AMLD.
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.
If you have a long-term relationship with your client, it is important that you regularly run the KYC process to ensure that the data is and remains up to date. In brief, you should continuously monitor your clients for any changes. These changes can occur with the client. An example of this is joining a political office whereby your client suddenly appears on a PEP list. But the changes can also be international: for example, a country gets a different risk classification.
The Customer Due Diligence and Know Your Customer process have been automated by SCOPE FinTech Solutions.
CDD On Demand
Using the CDD On Demand solution from Scope FinTech Solutions can simplify the client research from the CDD process in a very simple way, which saves a lot of time. Instead of checking your clients yourself based on certain criteria, CDD On Demand does the work for you. All you have to enter is the name and date of birth of your client, and it is immediately checked whether your client is on a PEP list, is on a sanction list, checking if there is adverse media about your customer, but also whether your client comes from or live in a country with an increased risk.
It's also possible (for Dutch companies only!) to identify the UBO of a company automatically and it's possible to place a search query on a so-called "Watchlist" so that your clients can be checked daily for any changes. After completing 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!