Quick Answer: What Is Bank Due Diligence?

How do you do due diligence?

Due diligence checklistLook at past annual and quarterly financial information, including: …

Review sales and gross profits by product.Look up the rates of return by product.Look at the accounts receivable.Get a breakdown of the business’s inventory.

Make a breakdown of real estate and equipment.More items…•.

What is the CDD rule?

The CDD Rule requires that financial institutions maintain “appropriate risk-based procedures for conducting ongoing customer due diligence,” including “[u]nderstanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile” and “[c]onducting ongoing monitoring to …

What is the EDD process?

Enhanced due diligence (EDD) is a KYC process that provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by customer due diligence. EDD goes beyond CDD and looks to establish a higher level of identity assurance by obtaining the customer’s identity and …

What is due diligence example?

It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition.

Why is due diligence important?

The meaning of due diligence is to ‘have a measure of prudence’ or to ‘perform a prudent review’. … Financial due diligence in particular allows the buyer to assess all financial aspects of a potential acquisition to determine what the benefits, liabilities, risks and opportunities are.

Is CDD and KYC the same?

Customer Due Diligence (CDD) or Know Your Customer (KYC) policies are the cornerstones of an effective AML/CTF program. Put simply, they are the act of performing background checks on the customer to ensure that they are properly risk assessed before being onboarded.

What does CDD mean in banking?

customer due diligenceAssess the bank’s compliance with the regulatory requirements for customer due diligence (CDD).

What is the difference between CDD and EDD?

CDD aims at collecting data about customers’ identity and contact information as well as measuring their risk. EDD is used for high-risk customers, aka those who are more likely to implement related to money laundering and terrorism financing activities due to the nature of their business or transactions.

What are the types of CDD?

There are three levels of customer due diligence: standard, simplified and enhanced.Standard customer due diligence.Simplified customer due diligence.Enhanced customer due diligence.

What is a CDD check?

Customer Due Diligence (CDD) information comprises the facts about a customer that should enable an organisation to assess the extent to which the customer exposes it to a range of risks. These risks include money laundering and terrorist financing.

What is ongoing due diligence?

conduct ongoing due diligence on the. business relationship, including: ▪ (a) scrutinizing transactions undertaken throughout the. course of that relationship to ensure that the. transactions being conducted are consistent with the.

What is due diligence checklist?

A due diligence checklist is an organized way to analyze a company that you are acquiring through sale, merger, or another method. By following this checklist, you can learn about a company’s assets, liabilities, contracts, benefits, and potential problems.

What are the 3 stages of money laundering?

There are three stages of money laundering, each with a unique purpose. The first stage is placement, second is layering and third is integration.

Who is a high risk customer?

Higher Risk Customers are those who are engaged in certain professions or avail the banking products and services where money laundering possibilities are high. Financial Institutions conduct enhanced due diligence (EDD) and ongoing monitoring for the higher risk customers.

When should CDD be performed?

When is CDD Required?New business relationship: Companies must perform due diligence measures prior to establishing a business relationship to ensure the customer matches their risk profile and isn’t using a fake identity.Occasional transactions: Certain occasional transactions warrant CDD measures.More items…

What are the three 3 components of KYC?

To create and run an effective KYC program requires the following elements: Customer Identification Program (CIP) How do you know someone is who they say they are? … Customer Due Diligence. … Ongoing Monitoring.

What are the 4 pillars of AML?

There are four pillars to an effective BSA/AML program: 1) development of internal policies, procedures, and related controls, 2) designation of a compliance officer, 3) a thorough and ongoing training program, and 4) independent review for compliance.

What is standard due diligence?

Standard due diligence requires you to identify your customer as well as verify their identity. … This due diligence should provide you with confidence that that you know who your customer is and that your service or product is not being used as a tool to launder money or any other criminal activity.