While they are closely related, they serve different purposes and have distinct applications.

Know Your Customer (KYC) refers to the process of identifying and verifying the identity of a customer when they open an account or engage in financial transactions. This involves collecting personal information such as name, address, date of birth, and government-issued identification. The primary goal of KYC is to ensure that the financial institution knows who its customers are, thereby reducing the risk of being involved in illicit activities. KYC is a one-time process conducted at the onboarding stage, and it typically includes checking the customer’s details against watchlists and databases to ensure they are not involved in criminal activities.

Customer Due Diligence (CDD), on the other hand, is a broader, ongoing process that goes beyond the initial KYC checks. CDD involves continuously assessing the risk profile of a customer throughout the relationship. This includes monitoring transactions, identifying suspicious activities, and updating customer information periodically. CDD aims to maintain a comprehensive understanding of the customer’s financial behavior, ensuring that their activities align with the initial risk assessment. CDD is risk-based, meaning that higher-risk customers will be subject to enhanced due diligence (EDD), which involves more in-depth checks and closer scrutiny.

While KYC is the foundation for establishing a customer’s identity and initial risk profile, CDD is an ongoing process that ensures the customer’s activities remain consistent with that profile over time. Both are essential for maintaining the integrity of the financial system and preventing financial crimes.

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