KYC is an essential part of business to protect the company from scammers, verifying the identity of customers is a must. This helps in verifying the identity of the customers and the businesses. When partnering with other companies, they must have the complete information of that business to safeguard them from fraud. Financial institutions perform customer due diligence because scams related to financial transactions are prevalent. The US customers lost $8.8 billion, more than a 25-30% jump from 2021 to 2022.
KYC is used to verify the customers and to check if they are the same customers they claim to be. This is done to prevent businesses from cyber crimes. CDD is a part of KYC, in which the risk rates of customers are checked.
- It is used to identify all the clients.
- Businesses are also verified through it.
- Companies can check the risk rate of their customers; in this way, they can deal with them according to their risk level.
- Suspicious activities can be highlighted by monitoring them continuously.
Customer due diligence is necessary for businesses, and the following reasons have increased their importance:
Institutions can reduce their risk by using CDD; in this way, they can minimize their financial risk and any reputational damage.
Businesses can maintain their reputation using KYC due diligence because customers trust the companies that keep their data secure. By using these solutions, businesses not only save their time but also the time of customers and their valuable resources.
Companies mitigate their risk because it will be difficult for the scammers to decode their data. Due diligence plays a significant role in banking because the banking sector is more prone to financial scams. Therefore, banks must perform due diligence.
These solutions enhance the security of businesses; hackers can not hack the strong codes of KYC solutions. Every year, many companies get scammed, and they lose a considerable amount of their profit. By doing Anti Money Laundering (AML) and customer due diligence, companies secure themselves against such fraudulent activities.
CDD has three primary levels, which are the following:
- Standard Due Diligence
Standard due diligence is done on customers who hold small accounts. The standard CDD requires Personally Identifiable Information (PII), which includes the following documents:
- Name of customer
- Contact number
- Date of birth
- Residential address
The local government does this type of KYC due diligence. These institutions verify that clients possess the CDD requirements. Determine the type of relationship that the business and client hold and list all authorized individuals.
Enhanced due diligence is the most common due diligence in banking. It is performed for customers whose risk profile is very high or they are politically exposed persons. Customers’ assets are placed in an independent financial arrangement. Customer due diligence for banks can be done if the person is not a resident of the country where he is holding a bank account. Companies have to decide how much they can face; they have to deal with the customers according to their risk rates. In this way, they can reduce the chances of fraudulent activities.
KYC has the following three steps:
CIP is the first in customer due diligence for banks; they identify whether their customers are authentic. Whether he is the same person he is claiming to be is used when businesses are onboarding new clients. In CIP, their record is matched with the record of the government. After this, record-keeping is done. Name, date of birth and address are required for it.
Customer due diligence is used to measure customers’ risk levels; banks perform this to measure the risk level of their clients. High customers are treated according to their risk level. The customer whose risk level is very high their activity is then monitored continuously. Those with less risk profile are given some leverage.
The last step is customer monitoring, which is an important step. Companies keep updated information about their clients, whether it is their phone number or their address. Any suspicious activity can be recorded through it, businesses have to monitor their clients continuously.
KYC due diligence is very necessary for the businesses, it protects them against fraudulent activities. Businesses can enhance their revenue by using customer due diligence. They can mitigate their risk, enhance customer satisfaction. Securing privacy can win the trust of the customer. Businesses have to know the risk level of their customer so that they can monitor their transactions according to it. Businesses can prevent their confidential data by using this solution.