The most important factor to run a business efficiently is to consistently acquire new customers. Although it requires a lot of effort to remain at the top. It is important to have information on the customer’s current business dealings to avoid any fraud or money laundering. Hence, KYC (Know your customer) should be done to comply with the RBI guidelines.
Before a few years, the verification of documents was being done manually which used to take long hours and paperwork. But now, with the advent of technology and internet connection, KYC verification can be done online without having to carry physical documents and paperwork. You can complete the KYC verification over a video call just by sitting at your home. However, it is important to cover various types of KYC. The two types of KYC approaches are Customer Due Diligence and Enhanced Due Diligence.
What is Customer Due Diligence (CDD)?
Customer Due Diligence is a type of KYC verification in which the customer’s information like name, address, email address, and other details are collected and verified during onboarding. The verification process ensures that there are no financial issues such as poor creditworthiness or low CIBIL score, or violation of counter-terrorist financing.
What is Enhanced Due Diligence?
Enhanced due diligence is a type of KYC verification that is more complex than CDD and it is done to reduce the risk of fraud like money laundering, financial fraud, and criminal activities. It is an advanced version of CDD that protects your company from any illegal activities. In other words, it involves background verification of the individual or the business.
The procedure for Enhanced Due Diligence is given below:
- Financial institutions need to track or examine the customer’s ongoing transactions and analyze their purpose. It is important to study customer behaviour by checking their transaction timing, interested parties, etc.
- Collection of information from various sources to analyze the individual’s risk assessment.
- Check published media reports of the business to reveal the secrets. In case there are any negative reports in the media about the business or an individual, the financial institution will be aware of the risk associated with the customer.
- Verify the source of earnings of the customer. In case there is fluctuation in the earnings or net worth of the individual, the customer does not get approved by the team conducting Enhanced due diligence.
- The financial institutions have to verify the address by doing physical verification of the site to ensure that the provided address on the documents matches the physical address.
- Lastly, the final report is prepared about the customer to check whether they are eligible for business dealings or not.
When do companies prefer EDD?
Companies opt for Enhanced due diligence while making business dealings with high-risk clients such as
- Individuals who are into politics
- Individuals who have a record of financial crime
- If the company suspects that the organization they are going to make business dealings with are into money laundering-individuals with high net worth. Financial Institutions need to be cautious while dealing with such clients.
- Corporations that are listed in the high-risk third countries.
Summing up
E-KYC verification is done by almost every financial institution and is an important process followed by various organizations to ensure that there is no fraud, money laundering, cybercrime, etc. Enhanced due diligence is done for advanced-level research about the customer to check the legality of the customer. If you are looking for video KYC services, you can take the help of Hyperverge as they use advanced technology to process the KYC.
