Customer due diligence

Customer or client due diligence (CDD) is a process of checks designed to identify, risk assess and verify your client to make sure they are who they say they are.

The purpose of CDD is to know and understand a client’s identity and business activities so that any money laundering and terrorist finance risks can be properly managed.

Our monitoring reviews identified several common findings relating to CDD:

• 7.8% of firms could not demonstrate their ongoing CDD procedures on at least one sampled client file. This included cases where CDD had been updated for some clients but not others, changes had been considered but not recorded, or electronic CDD systems did not clearly evidence the review.
• 5.7% of firms had not always identified all beneficial owners, understood the client's business or operating jurisdictions, or identified relevant information through basic open-source checks.
• 5.5% of firms could discuss the risks identified in client risk assessments but had not fully documented them.
• 4.2% of firms had not performed adequate CDD on all their new clients. We raise this finding where there is no evidence of CDD on at least one sampled client file.

The frequency of CDD reviews should be determined on a risk basis. Some firms review the CDD for normal or low-risk clients every three years, and high-risk firms every year. However, this approach only works if you have robust procedures in place to trigger events such as providing a new service to an existing client, significant changes to key office holders, the introduction of a politically exposed person or if a suspicious activity report has been made.

Firms should ensure their procedures clearly document when reviews are required and retain evidence of the checks undertaken.

• Watch our AMLbites CDD part 3 for best practice tips on performing ongoing CDD
• Guidance from the CCAB on AML and Counter-Terrorist Financing for the Accountancy Sector
• Fact or fiction: Due diligence requirements
• Watch our webinar on how CDD should operate in practice