In many industries, including property, carrying out Customer Due Diligence is required by law.
What Is Meant By Customer Due Diligence?
Customer Due Diligence (CDD) is a series of processes that allow you to get to know a customer.
These checks help you identify customers, confirm their identity, and monitor their behaviour to establish that they’re not involved in illegal activity.
So, why is Customer Due Diligence important?
In short, Customer Due Diligence is essential not only because it’s a requirement of anti-money laundering legislation but also because it helps businesses protect themselves whilst helping to tackle financial crime.
Effective CDD is good practice for all businesses dealing with large sums of money, and there are numerous reasons why it’s important.
Why Customer Due Diligence Is Important
The reasons Customer Due Diligence is important include, but are not limited to:
- Customer Due Diligence helps you verify customers’ identities
- It helps mitigate risk
- Solid Customer Due Diligence complies with strict AML regulations
- It protects your reputation
- Effective Customer Due Diligence prevents non-compliance fines
1. Customer Due Diligence Helps You Verify Customers’ Identities
It’s important that the customers you work with are who they say they are, and Customer Due Diligence helps you verify that, amongst many other essential factors.
If a customer is hiding their true identity, it could be for numerous reasons that could point to a criminal background that they don’t want you to discover or a financial crime they’re attempting to commit.
Knowing who your customers are and ensuring that they’re legitimate protects your business from fraud and from enabling the wider problem of organised crime, highlighting the importance of CDD.
2. It Helps Mitigate Risk
A key reason why Customer Due Diligence is important is that it helps businesses mitigate risk.
Customer Due Diligence allows you to assess the money laundering, financial terrorism, and fraud risks a prospective client may expose your business to.
Considering it’s been estimated that between 2 and 5% of global GDP is laundered each year (or between EUR 715 billion and 1.87 trillion each year), the importance of Customer Due Diligence can’t be overstated.
Customer Due Diligence helps businesses to better understand who the customer is, the source of their funds, as well as the associated risks of having them as a customer.
As such, CDD allows businesses to identify high-risk customers and carry out Enhanced Due Diligence measures for closer inspection.
3. Solid Customer Due Diligence Complies With Strict AML Regulations
Customer Due Diligence plays an important role in anti-money laundering in many sectors.
AML standards and regulations are tightening globally to help fight money laundering and terrorist financing.
Adhering to Customer Due Diligence requirements helps to ensure wider compliance across anti-money laundering regulations.
Are you looking to revolutionise the way you manage Due Diligence and compliance? Credas can help.
Our ID verification and AML checks help eliminate unnecessary manual processes while ensuring a high level of compliance.
Get in touch with a member of our team today to learn more about our services.
4. It Protects Your Reputation
Customer Due Diligence also helps to protect your reputation.
Non-compliance fines paired with money laundering, fraud, and other crimes can all contribute to damaging your firm’s reputation.
Research has found that financial crime is thought to cost the UK economy around £290 billion annually, highlighting how damaging the problem is.
From fines to negative publicity and litigation, various factors can result in your customers losing trust and looking to take their business elsewhere, which can have drastic financial consequences for your business.
By performing thorough Customer Due Diligence and being committed to strict compliance, businesses can avoid being associated with criminal activities, in turn helping to build client and stakeholder trust.
5. Effective Customer Due Diligence Prevents Non-Compliance Fines
Customer Due Diligence is essential to avoid non-compliance fines.
Under anti-money laundering regulations, failure to comply could result in severe penalties, fines and even legal repercussions.
This is emphasised by the fact that in 2024 alone, HMRC issued over £1.6m in fines to estate agents for failing to register for AML supervision, serving as a stark warning.
Considering the UK government is cracking down on financial crime, regulated businesses that don’t follow necessary anti-money laundering procedures are likely to be fined.
Customer Due Diligence is crucial for businesses to comply with the law and to protect themselves from financial and reputational risks.
How We Can Help
At Credas, we use cutting-edge technology to enable firms to streamline their Customer Due Diligence.
To discover how Credas can help you seamlessly complete Customer Due Diligence and meet your AML obligations, contact a member of our team today or book a demo.
