A sound Customer Due Diligence Program (CDD) is a key component of an effective anti-money laundering and counter-terrorism financing (AML/CFT) framework. According to the Financial Action Task Force (FATF), the global standard-setter for AML/CFT, CDD involves the following elements1:
* Identifying the customer and verifying their identity using reliable, independent sources of information or documents.
* Identifying the beneficial owner and taking reasonable measures to verify their identity, so that the financial institution understands who ultimately owns or controls the customer or the funds.
* Understanding and obtaining information on the purpose and intended nature of the business relationship.
* Conducting ongoing due diligence on the business relationship and scrutinizing transactions to ensure that they are consistent with the financial institution's knowledge of the customer, their business and risk profile, and the source of funds.
Therefore, the three elements of a sound CDD program that are listed in the question are:
* Determination of what type of customer the financial institution will accept: This involves defining the customer acceptance policy and risk appetite of the financial institution, and applying appropriate risk-based measures to accept or reject customers based on their risk profile and the financial institution's ability to manage and mitigate those risks2.
* Training as to how and to what extent to identify prospective customers: This involves providing adequate and regular training to the staff who are responsible for conducting CDD, and ensuring that
* they are aware of the legal and regulatory requirements, the internal policies and procedures, the risk indicators, the verification methods, and the reporting obligations3.
* Obtaining date of birth and address of a prospective customer: This is part of the basic information that is required to identify and verify the customer's identity, and to establish their risk profile and the source of funds. The date of birth and address can also be used to check against various databases and watchlists to detect any potential matches with sanctioned or high-risk individuals or entities4.
The element that is not part of a sound CDD program is:
* Determination of who in the institution should be assigned to the prospective customer as a liaison: This is not a mandatory or essential element of CDD, although it may be a good practice to assign a dedicated relationship manager or contact person to each customer, especially for high-risk or complex customers, to ensure effective communication, monitoring, and service delivery.
References:
* FATF Guidance on Customer Due Diligence and Financial Inclusion 1
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) 2
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 4: Developing an AML/CFT Program 3
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 5: Conducting and Supporting the Investigation Process 4
* Wolfsberg Group Guidance on Customer Due Diligence (CDD)