What is Customer Due Diligence (CDD)? (Updated for 2025)

Customer due diligence (CDD) is the process through which banks and other financial institutions verify the identity of their customers and assess the risks associated with doing business with them. This process is mandatory by law and helps the institution understand the money laundering risks they face.

Implementing the right CDD measures ensures compliance with regulations while protecting the institution from fraud.

This article discusses what is customer due diligence in 2025, CDD processes, types of customer due diligence, and other things you should know. It also explains customer due diligence requirements and highlights how customer due diligence best practice can be applied by financial institutions.

This article widely discusses customer due diligence (CDD), its processes, types and other things you should know.

What is Customer Due Diligence (CDD)?

Customer due diligence is the process of proof checking your customers' information and background to verify their identity and assess the level of risk involved in conducting business with them. The customer due diligence process requires organisations to collect important customer information like their name, address, occupation, and how they plan to use their account.

To meet customer due diligence requirements, information provided by the customer is fact-checked against official records and databases such as passport, utility bill, driver’s license, etc. Basically, this helps the firm understand what type of customer they are and the related anti-money laundering (AML) and combating financing terrorism (CFT) risks they pose. Globally, all Financial Action Task Force (FATF) member countries have to implement CDD checks domestically as part of their larger scope of AML and CFT goals.

What are the basics of Customer Due Diligence (CDD)?

The Customer Due Diligence process is guided by three foundational rules. They include:

1. Identifying customers

This is the first and most basic step of the Customer Due Diligence process. It involves customer due diligence checks that is, the company collecting personal information from its customers through accepted IDs. Data to be collected include address, passport, name, photographic ID card, and more.

2. Establishing business relationship

In this process, the company establishes the nature and purpose of the business relationship which they are creating with the customer.

3. Establishing beneficial ownership

Here, the company seeks to establish the identity of the ultimate beneficial ownership (UBO) when the customer is acting on behalf of a third party. The UBO simply refers to the individual or group that benefits from the activities of the customer.

When is Customer Due Diligence (CDD) Required?

Customer Due Diligence (CDD) is required when an organisation falls under the AML/ CFT regulation. This means it has to conduct identity verification on potential customers to assess their risk profile.

The organisation is required to undergo these CDD measures and KYC steps for these situations:

1. Suspicion of financial crimes:

If the customer is suspected of terrorism financing or money laundering.

2. Occasional Transactions:

There are certain transactions that necessitate CDD measures. For example, this could apply to high-risk transactions or amounts of money over a certain limit.

3. Ongoing monitoring:

Although CDD starts with a process, it doesn't end there. It is not a one-time obligation, therefore, companies are required to frequently perform CDD at different times in the business-customer relationship to ensure the customer is compliant with their established risk profiles.

4. Untrusted Documentation:

This is a situation wherein the custom provides an unreliable identity KYC document for verification. In such a situation, CDD should be applied.

By applying these steps, firms stay aligned with customer due diligence best practice and regulatory standards.

Is Know Your Customer (KYC) the same as Customer Due Diligence (CDD)?

No, KYC is not the same as CDD. KYC is one of the processes involved during client due diligence, while CDD is the overall process that both identifies the customer and assesses the risks involved in doing business with them.

What is the difference between KYC and CDD?

The major difference between KYC and CDD is that KYC is one of the processes organisations carry out to prove that they have satisfied CDD. CDD itself is the overall system that both verifies and identifies risks surrounding the business-customer relationship.

Why is Customer Due Diligence (CDD) important?

Customer Due Diligence (CDD is important due to the high stakes involved in transacting with customers in the finance industry. CDD checks is necessary for comparing money laundering and terrorist financing, which has become a global spectrum for criminal enterprises.

Some of the reasons why Customer Due Diligence is important are:

To protect the reputation of financial institutions
To avoid legal compliance penalties
Coping with increasing costs
To keep up and expose new tricks of fraudsters and criminals
To improve on poor service quality

INTREASTING READ: Customer Due Diligence Process for KYC Compliance in Nigeria

Step-by-step process on how to perform Customer Due Diligence (CDD)

Businesses must apply the right types of customer due diligence depending on client risk profiles. A client due diligence form or customer due diligence form is often used to collect information and keep records:

Collect all relevant information from the customer (name, address, nationality, etc.).
Make use of an authentication system to validate customer data.
Scrutinise and assess the activities of customers e.g Politically Exposed Persons (PEPs) or customers from high-risk countries.
Continuously update client due diligence procedures as profiles change.

What is Risk-Based Customer Due Diligence (CDD)?

Risk-based CDD means applying stricter or lighter customer due diligence checks depending on the customer’s risk level. also Risked-based Customer Due Diligence is the due diligence procedure which varies directly with the level of risk in question. CDD and KYC processes should take a risk-based approach at every time. This means that the company involved should assess the AML/ CFT risk posed by each customer and set their due diligence procedure as it fits. Customer due diligence best practice requires institutions to take this flexible approach.

Therefore, although the customer would face their standard CDD procedure, which largely means identity verification, more strict or less stringent processes could be applied for customers that pose higher or lower risks.

As a rule of thumb, the following processes must be included in a company’s risk assessment procedure:

Standard risk assessment that takes into account the risk variables surrounding the business-customer relationship.
Money laundering procedures and policies that incorporate the firms' risk assessment.
Internal audit teams to robust test internal policies, procedures and adequate controls as required.
Continuous training and monitoring of personnel on how to carry out risk-based CDD.

What is Enhanced Due Diligence (EDD)?

Enhanced Due Diligence (EDD) is the KYC process that allows organizations to adequately evaluate other corporations and high-risk individuals before conducting business with them. EDD is carried out because as an extra layer of scrutiny for clients due diligence, not conducting this your customer may pose greater risks of financial crimes to your businesses. To protect themselves, businesses have to take extra steps to assess associated risks than they normally would. Examples of these clients are Politically Exposed Persons (PEP) or corporations from high-risk nations.

EDD is used by businesses to protect themselves and satisfy compliance requirements. During the EDD, qualified specialists should be consulted to avoid mistakes and time-wasting. a combination of EDD an CDD measures ensures you are fully compliant and better protected from financial crime.

What is Ongoing Monitoring?

Ongoing monitoring strengthens client due diligence by keeping track of transactions, storing client data, and ensuring that activities remain consistent with the customer’s established risk profi

The following actions are carried out during ongoing monitoring:

Keeping records, data, documents, and important client information for CDD purposes.
Monitoring transactions throughout the duration of the business-customer relationship to ensure a client's activities correspond to their risk profile.
Keeping track and staying highly sensitive to suspicious changes in the risk profile of a client.

Applying Technology Expertise to Effectively Conduct Customer Due Diligence Process

Technology makes customer due diligence checks faster and more reliable. Automated systems simplify compliance, allowing institutions to complete a customer due diligence form in seconds and onboard clients more effectively. For the most effective outcomes, CDD and KYC processes are built by combining technology and expertise. As risk profiles and criminal intelligence evolves, financial institutions should be prepared to be flexible and adapt to their CDD approach to satisfy AML/ CFT regulations.

Youverify’s flagship product allows businesses to perform Customer Due Diligence (CDD) in a matter of seconds. while meeting customer due diligence requirements.

Here is a video description of how it works:

You can now onboard customers and complete KYC using just their mobile phone numbers. Keep in mind that it has to be the phone number linked to their bank account and NIN. By collecting their phone numbers, our “Advanced Search” can help you retrieve other relevant information like their NIN, BVN and full data.

The implication is that businesses and organisations can now onboard customers with just their phone numbers and complete KYC with full compliance. This greatly transcends the current use of customers' phone numbers for only user authentication like OTP.

Advanced Search is available on our flagship product, and only available to customers in compliance with Nigeria Data Protection Regulation (NDPR).

Book a demo session today to see how YV OS can help automate your business’s KYC Due Diligence! Also, feel free to contact us here for any questions.

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