Which are information requirements that companies need to execute a transaction
Customer Due Diligence (CDD) is the process of collecting and verifying information about a customer during onboarding. This includes the customer’s name, address, and other personal data. Show
Businesses must carry out CDD when establishing a business relationship. For example, a bank or trading platform may need to check a customer’s passport before allowing them to create an account and deposit money into it. Why is CDD important?Without CDD, businesses leave themselves open to fraud as well as fines for non-compliance with Anti-Money Laundering (AML) requirements. In juridictions like Cyprus, failure to comply with AML regulations can cost businesses more than one million euros. What is CDD in the KYC process?CDD and KYC often get confused. “Customer Due Diligence” is a specific legal term that applies to all regulations, while the meaning of “Know Your Customer” can slightly differ from jurisdiction to jurisdiction. In other words, CDD involves a specific list of procedures set by law, while the list of required KYC checks may vary. Learn more about KYC and its importance from our previous article. Variations of CDD: Simplified Due Diligence and Enhanced Due DiligenceIn circumstances posing a low money laundering risk, some regulators allow conducting a simplified check, known as Simplified Due Diligence (SDD). For higher-risk situations, businesses may need to perform more in-depth verification called Enhanced Due Diligence (EDD). Simplified Due DiligenceFinancial regulators don’t always require every consumer to go through the full verification process. SDD is a good solution for low-risk customers, such as well-known public enterprises and individuals with reliable sources of funds. SDD doesn’t skip over any of the essential CDD steps, but it does allow businesses to reduce the time and extent of the verification process. For instance, SDD can be applied when customers make transactions under 100$. But, if they exceed this amount, they will have to go through the full CDD procedure. SDD may not be appropriate for certain industries, products, or jurisdictions. Enhanced Due DiligenceThere are plenty of suspicious cases that present a higher risk of money laundering and therefore must be put through Enhanced Due Diligence (EDD). These include customers from high-risk countries, Politically Exposed Persons (PEPs), cross-border correspondent relationships with a third-country, or high transaction amounts. The difference between CDD and EDD is in the number of checks conducted by companies. Additional assessment within EDD can range from requests for more information to verification of sources of wealth and funds, as well as getting senior management approval before starting the business relationship. Customer Due Diligence RequirementsThe list of information required for collection depends on whether the customer is an individual or a company. Verifying an individualThe required information can differ across jurisdictions, but here’s a common baseline for verifying individuals:
To verify a customer’s identity, businesses can reference a document issued by an independent and reliable source bearing the customer’s photo. This can be an ID card or a passport. To verify a customer’s residential address, businesses can use recent (up to six-months old) utility bills, housing insurance documents, or municipal taxes and bank account statements. If a business onboards customers remotely, automated verification is the way to go. It reduces onboarding time to a couple of minutes and increases conversion rates, without needing to hire additional employees to control the process. Verifying a companyWhen establishing a relationship with another company, businesses must request and verify certain information. While the exact list can differ across jurisdictions, here’s a common baseline:
The goal is to establish the beneficial owners of the company. These are the individuals who directly or indirectly own more than 25% of the company or otherwise exercise significant control over it. After the beneficial owners are identified, they must be verified. Customer Due Diligence ProcessWe’ve broken down the CDD procedure into three steps. Step 1: Verifying a customerCustomer Due Diligence begins by obtaining basic information about the customer. The list of required data is provided in the section above. To obtain data about a customer that is a company, including information on beneficial owners, original or certified copies of documents that confirm the company’s legal foundation and shareholders must be requested. Among them are certificates of incorporation, memorandum, articles of association, etc. All copies of documents obtained from conducting Customer Due Diligence on both individuals and companies must be retained. Step 2: Choosing the right due diligence trackBusinesses can choose between regular, enhanced, and simplified due diligence based on what they know about a customer. For instance, if a bank understands that a customer is a government official (a PEP), it can still onboard this person, but an enhanced check is needed. Step 3: Ongoing monitoringThe story doesn’t end once you’ve onboarded a client and established a business relationship. It continues with ongoing monitoring. Due diligence needs to be continuous as there’s always a chance that a customer’s profile changes over time. For instance, they can land on a PEP list, initiate a high-risk transaction, or their ID can simply expire. Keeping an eye on customer profiles and transactions can help businesses respond to any sudden crisis. CDD in different industriesWhile CDD requirements are mostly similar across industries, there are certain nuances. Learn more about CDD specificities by industry, including in banking, in forex, and in fintech. Ensuring the utmost security of remote verificationSometimes fraudsters provide real documents or selfies acquired on the darknet. In such cases, even the most reliable verification systems may not detect anything suspicious because no document manipulation has occurred. To stop criminals when onboarding customers remotely, businesses can introduce an additional facial biometric check called liveness. This check ensures that the true document holder undergoes verification. Looking for helpful tools? Sumsub’s complete toolkit for KYC/AML checks will help protect your business from financial crimes. FAQ
See Sumsub in actionLooking for helpful tools? Sumsub’s complete toolkit for KYC/AML checks will help protect your business from financial crimes.Book a demo Keep readingWhat are the six steps required to process a transaction?There are six steps in processing a transaction. They are data entry, data validation, data pro- cessing and revalidation, storage, - output generation, and query support.
What is the input requirement of a transaction processing system?Components of Transaction Processing System
Inputs: These are source documents gotten from transactions which serve as inputs into the computer's accounting system examples are invoices, and customer orders. Processing: This requires the breaking down of information provided by the inputs.
What are the four components of transaction support system?TPSs commonly possess certain elements such as inputs, storage, processing, and output. An input is a source document such as a customer order. Storage refers to records such as ledgers, which are usually stored in databases.
What are the three components that each transaction has?Three components of a transaction processing system are input, storage and output.
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