This is a question the Covery team has to answer quite often. So frequently, in fact, that we decided to post a brief overview of CDD or Customer Due Diligence, AML compliance, and explain the Know Your Customer meaning. Read on if you wish to know which of these is responsible for what and how they all relate — and why you need all of them for your business.
If you do business in a heavily regulated industry — online payments processing, iGaming, e-commerce, etc. — you need to perform ongoing CDD checks. It is needed to ensure your customers indeed are who they claim to be. This way, you can rest assured they are not using your business as a forefront and a scapegoat for money-laundering activities.
This is actually true for all business domains, as well as for our everyday lives. You select a restaurant based on reviews and menu, you select a car by test-driving it before buying and undergoing a full car shop examination, if you don’t buy a brand new one from the salon, etc. We do background checks before making any decision and so we can define due diligence as the process of ensuring the deal with this customer does not pose excessive risks for your business. Now, what does KYC stand for?
KYC: what is it used for?
Know Your Customer or KYC is the essential part of the CDD process, involving customer verification through photo ID, email or phone number, etc. This way, the KYC information you gather allows you to evaluate the risk profiles of every customer. However, KYC workflows in banking, fintech, and other kinds of online transactions involve much more than simply customer identification. You must ensure the person you are dealing with is not a Politically Exposed Person (PEP), he/she is not under sanctions, is not affiliated with criminals, and is not going to use your business as a cover for money-laundering.
Such checks must be performed while onboarding the new customer and every time you do business with them, as the PEP/RCA/SAN watchlists get updated daily. This way, the KYC meaning becomes much larger than simply running an initial background check on your customer — it is an ongoing risk management process to ensure the risk profile of your business stays manageable and you don’t get fined or sued for breaking the law.
As a matter of fact, there is quite a strict Know Your Customer Regulation. There are specialized regulatory bodies in many countries and you have to comply with all the requirements to do business there. How to ensure you stay on the safe side then?
KYC and CDD automation
There is a variety of risk management solutions like Covery, providing managed CDD services and enabling you to perform automated KYC checks every time a customer logs in or performs a transaction. This helps identify fraud early, reduce the number of chargebacks, ensure AML compliance, prevent account takeover, synthetic identity theft, and other criminal activities.
By comparing the information the customer provided with his publicly known reputation record (Trustchain database), unique information about his access point (device fingerprinting), your logged information about his previous transaction history (behavioral analysis), and data from other sources, Covery can flag suspicious activity at once.
Combining this with strong and configurable business risk logic scenarios allows Covery to reduce the chargeback rates and expenses, unravel malevolent schemes, detect various kinds of fraud (like account takeover, Card Not Present fraud, etc.), and stop fraudsters before they can do harm to your business.
Thus said, there is no point in comparing CDD vs KYC, as they are both essential parts of a bigger and very important AML strategy. If you do business in a regulated niche, ensuring AML compliance is vital for obtaining and retaining the EMI license, growing and expanding your business. Doing KYC checks manually is a time- and effort-consuming endeavor, so automating this process is a wise investment that will bring ample fruit.
Using Covery you can ensure smooth KYC automation and CDD compliance due to the fact that Covery is a certified CDD services provider with access to the latest versions of Dow Jones PEP databases and sanctions watch lists. Besides, Covery comes with a variety of features that cater to all risk management needs of a modern startup, scaleup, or enterprise business.
Should you have any other questions on KYC, CDD, and how to implement them for your business — ask away, we are glad to assist!