The 5 Ultimate Steps to Improve Customer Due Diligence For Banking

Article about The 5 Ultimate Steps to Improve Customer Due Diligence For Banking

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Oct 5, 2021

To prevent money laundering, compliance professionals around the globe are adopting efficient ways. The digital era has laid the foundation of a new wave of financial scams and lawmakers are pushing back by reinforcing customer due diligence for banking (CDD) liabilities and anti-money laundering (AML) regulations in an attempt to hamper the pandemic. 

While laws and regulations do assist in preventing financial crimes within and across financial institutions, strict standards also reflect the process of enhanced friction, costs, and compliance staffing. 

Why CDD is Crucial for Banks?

Manual CDD procedures mean that AML compliance is not properly followed and is complex. This results in financial organizations falling short with inadequate customer due diligence for banking.  

With poor AML programs, financial institutions can not ignore the need for comprehensive CDD procedures. If AML procedures do not comply with laws, financial firms can experience jaw-dropping non-compliance penalties. 

Customer Due Diligence for banking sits at the heart of know your customer (KYC) and anti-money laundering (AML) initiatives. It is developed to assist financial institutions and banks to identify their customers, to confirm that they are not present on any prohibited lists, and to examines their risk factors. 

Customer due diligence for banking identifies users and verifies their authenticity. The institutions properly check that they are risk-free before they are enrolled. It means getting a users’ details and matching them against those of official documents which authenticating their identity. 

CDD Checklist - Five steps to Improve Customer Due Diligence for Banks 

To confirm that companies are adhering to best practices, there is the following five-step checklist to assist improve the customer due diligence process:

Step 1: Verify Customer Identities 

This step requires the business to perform customer due diligence for banking checks before building the business-customer relationships in order to identify the potential threats beforehand. Creating barriers to restrict criminals from accessing accounts assists in preventing illegal activities before they can even begin. 

It can be done by assessing the location and identity of potential users and gaining a good understanding of their business activities. Keeping in view the increasing digital scams, obtaining more information, or undergoing additional identity measures in customer due diligence for banking is what businesses are required to do. This additional information includes name, address, date of birth, identity documents, geolocation, and third-party account verification. 

Step 2: Assess third-party data Sources 

Businesses need to strengthen their processes through KYC banking before resourcing their operations. However, it is imperative to select these third parties very wisely because the ultimate reliability of customer due diligence for banking protocols falls on financial institutions and not the third parties. 

Step 3: Protect your Data 

This process ensures that data has been gathered safely through KYC requirements for banks. It ensures that pertinent information has been collected and stored securely. While verifying a potential user, prior to storing information digitally one has to classify their risk category and identify what type of consumer they are. To keep PII data (personally identifiable information) intact, there are stringent regulations regarding how that data is collected, saved and shared. Securing user data is crucial to prevent any reputational damage. 

Step 4: Practice any necessary additional Measures 

Along with customer due diligence for banking, it is imperative for businesses to detect if there is a need for compliance in EDD banking. This can be an ongoing process, as users always have the potential of becoming a high-risk entity, therefore, performing periodic due diligence is what can save businesses from facing any disastrous effects. 

Step 5: Make sure you are Audit ready 

Keeping historical data on hand can keep the businesses secure as they can present the data whenever it is required. Companies are liable to keep the information in a digital format. Keeping records of customer due diligence for banking and enhanced due diligence for banks of each user, is obligatory in case of future regulatory obligations.

With effective digital records in place, internal audit procedures re-run and re-examine conditions to minimize risks, to make the performance better and secure against problematic accounts. These accounts serve to be a defensive mechanism to assist the whole compliance method, as they can be deployed to double-check accounts that have passed the checks at the time of customer onboarding. These measures permit the auditing teams to sharpen their tactics, examine assumptions and upgrade compliance processes. 


Considering the increase in scams, businesses are liable to process security measures that can protect them from facing unfortunate consequences. Customer due diligence for banking is the dire need for time for financial institutions to verify their customers. KYC banking regulations need banks to perform KYC due diligence through KYC documents. 

Articles authored by  Wade Williams