Customer due diligence

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Glossary / C / Customer due diligence
Glossary · KYC and identity

Customer due diligence

CDDAlso called customer identification, KYC checks

Definition

Customer due diligence is the set of checks a regulated firm carries out to identify and verify a customer, understand the purpose of the relationship and assess its money laundering risk. It includes identifying beneficial owners of companies and monitoring the relationship over time. It is the core of every AML programme.

IDENTIFYVERIFYBENEFICIAL OWNERSRISK RATING
Fig. 1 · Customer due diligence
FATF Recommendation 10 · MLR 2017 regulation 28 · AMLR
Key rulesFATF Recommendation 10 · MLR 2017 regulation 28 · AMLR · FinCEN CDD Rule
Applies toUK relevant persons
RegionsGlobal · UK · EU · US
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How it works

When a customer applies, the firm collects identity details and verifies them against documents or reliable electronic sources. For a company, it identifies the beneficial owners and the people in control. It records the nature and purpose of the relationship, gives the customer a risk rating, and sets the level of ongoing monitoring and periodic review.

CDD decides which customers a firm takes on and how closely it watches them. Low-risk customers may receive simplified checks and high-risk customers enhanced ones. Regulators often find CDD failures, such as missing ownership data or outdated files, at the centre of enforcement cases.

Step 1IdentifyCollect name, date of birth, address or company details
Step 2VerifyCheck identity against documents or reliable data
Step 3Find ownersIdentify and verify beneficial owners of entities
Step 4Rate riskAssign a risk rating and set monitoring level
Step 5MonitorReview activity and refresh records over time
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The rules

Global · February 2012FATF Recommendation 10FATF Recommendation 10: Customer due diligence

Sets the global standard to identify and verify customers and beneficial owners, understand the relationship and conduct ongoing due diligence.

Financial institutions in FATF member jurisdictions
UK · 26 June 2017MLR 2017 regulation 28Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, regulation 28

Sets out the customer due diligence measures, including identification, verification, beneficial ownership and understanding the purpose of the relationship.

UK relevant persons
EU · 10 July 2027AMLRRegulation (EU) 2024/1624 on the prevention of the use of the financial system for money laundering or terrorist financing

Replaces national CDD rules with a single directly applicable EU rulebook on customer due diligence from July 2027.

EU obliged entities
US · 11 May 2018FinCEN CDD RuleCustomer Due Diligence Requirements for Financial Institutions (31 CFR 1010.230)

Requires covered institutions to identify and verify beneficial owners of legal entity customers and maintain risk-based customer profiles.

US banks, broker-dealers, mutual funds, futures firms
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Common questions

What is the difference between KYC and CDD?

KYC is the broad practice of knowing who a customer is. CDD is the specific legal set of measures within it, covering identification, verification, beneficial ownership, purpose of the relationship and ongoing monitoring.

When must CDD be carried out?

When a business relationship is established, for certain occasional transactions, when money laundering is suspected, and when the firm doubts previously obtained information. It is also refreshed during the relationship based on risk.

Did FinCEN change the US CDD rule in 2026?

On 13 February 2026 FinCEN issued an order letting covered institutions identify and verify beneficial owners at a legal entity's first account opening, rather than at every new account, unless risk or doubts require it.