Customer Due Diligence: a challenge for the modern business
Entering into new business relationships will become considerably riskier in the years ahead. To prevent fraud and money laundering, legislators require companies that enter into agreements with customers to produce a risk analysis as evidence of due care. The primary purpose of a Customer Due Diligence (CDD) check is to build a picture of the financial risks of working together. The CDD risk profile is formed by combining data on creditworthiness, the guardianship register and the Chamber of Commerce register, among others. Sources such as the insolvency register or the PEP register add further insight and value to your CDD and your decision: do I do business with this prospective buyer or customer, or not?
The need for CDD-proof operations is urgent
The CDD process is necessary, but at the same time it can be a nuisance for the organisation carrying it out. It often creates extra work across various business processes. Without a solid approach that means a lot of lost time and organisational headaches the core business has no appetite for.
That is why it is enormously important to run an adequate, CDD-proof operation. Insight and control matter, because you need measurable visibility of the customer through every layer of the business. In short: plenty of questions, and possibly even more challenges. A few of them come up straight away:
- What steps do I have to take to comply with CDD legislation?
- How can I automate, surface and monitor this within my organisation?
- How do I make sure my employees and customers are affected as little as possible?
Customer Due Diligence in context
Various data sources flag a number of points that deserve closer attention for a prospective business relation “A”. After careful analysis, the data in this case produces a risk score of eight on a scale of one to ten. Weighing up the data and the case, the decision here is not to do business with “A”. The tricky thing about CDD is that identical data in a different context can produce a completely different risk profile.
In the first situation the conclusion is that it is better not to do business, while in another case an acceptable risk can be taken. Context, data and analysis matter enormously in reaching the right judgement. Where a risk score of eight sets off every alarm bell for customer “A”, in theory it may cause fewer or even no problems for customer “B”. When it comes to CDD, everything depends on the situation.
CDD and the power of data automation
Preventing CDD failures
More and more often, companies will find they need a complete picture of their customer — both new and existing relationships. Preventing CDD failures, by having a timely view of the risks a business is exposed to, helps prevent fraud and money laundering. You have to be able to demonstrate to the regulator that your organisation is doing, and has done, everything reasonably possible to prevent it. Being able to show that quickly and completely is essential. So how can automation secure this within existing processes without much fuss?
IT is the key to implementing your CDD without too much hassle. Well-designed automation and data analysis are what make the difference here. With IT you translate a risk profile of your own making into automated checks that match data against various databases, time after time. Using several measurement moments, a business system has ample insight to surface a given risk and attach values to it. The power of IT here lies less in checking data automatically and in real time, and more in formulating an outcome.
By using data and being able to place it in the right context, companies gain more — and above all better — insight into customers. What IT really does is make sure that final step, from analysing the risk profile to an unambiguous recommendation, is presented to your team clearly. When there is a red flag, an alert goes off and a full overview with the crucial information is available immediately: where is the problem, and where is extra attention needed? Instant clarity, for management and the shop floor alike.
