# Customer Due Diligence (CDD)

## What is Customer Due Diligence?

Customer Due Diligence (CDD) is a process used to gather customer data and evaluate the risk category of the customer. Generally, it is a kind of basic scrutiny about a customer for risk exposure of the business or financial institution.

The information obtained about a customer includes documentation related to the official or legal identity of the individual that establishes proof of identity, address, nationality, date of birth and signature.

## What is the relevance of CDD in the KYC process?

As part of the CDD, documents related to [Know Your Customer (KYC)](https://13.239.146.144/knowledgebase/know-your-customer/) are obtained to establish customer identity. The same is further verified as part of KYC onboarding.

Customer identification includes any acceptable document that establishes the customer as a citizen or beneficiary of civic benefits and his proof of address. For entities, acceptable documents include proof of a valid legal presence and the trading address.

Customer verification is the process whereby a customer identity is verified (KYC onboarding), as well as checked against beneficial ownership and sanctions (AML compliance).

Customer identity is verified to ensure that the customer is who he/she claims to be. This is referred to as the KYC onboarding process, where an external service provider or a RegTech company confirms the validity of the documents provided by the customer. Signature proof and additional proofs like self-cheques are some instruments used to verify customer identity.

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## What are the regulations around CDD?

CDD is a compulsory requirement for all financial institutions and business covered by [anti-money laundering](https://13.239.146.144/knowledgebase/anti-money-laundering-and-counter-terrorism-financing/) regulations that enter into a business relationship with a customer. CDD regulations include KYC onboarding as well as ongoing diligence best practices. It covers within its purview new accounts as well as occasional one-off transactions, such as large amounts beyond specified amounts, or sudden activities in high-risk industries or sectors.

## Identification of beneficial owners – an important element of CDD

A “beneficial owner” is any individual who is either of the following:

a) Directly or indirectly owns 25% or more of the equity interests of a legal entity customer,

b) Has significant responsibility to control, manage, or direct the legal entity.

There are written procedures to help identify and verify “beneficial owners”, followed by a mandatory screening compliance. Screening against lists of individuals and entities identified as terrorists, narcotics traffickers, PEPs and database of Sanctions Lists, are part of the CDD compliance.

## The advantages of CDD

As expert third-party services are employed, there is less chance of human error involved. The process of customer onboarding is fast-tracked for KYC and AML compliance, making business processes more resilient and efficient.

A complete customer profile is created with risk scoring, for a business to decide whether to proceed or not with onboarding and registering a customer.