What is meant by 'customer due diligence'?

Customer due diligence refers to the process in which a financial institution or service provider evaluates a customer’s risk and verifies their identity and information. This process is crucial in the context of compliance with regulations aimed at preventing money laundering and other financial crimes.

By assessing a customer's risk, institutions can better understand the potential for fraudulent or illegal activities associated with that customer. This involves collecting essential information such as name, address, date of birth, and details of the customer's financial activities, which helps in identifying any discrepancies and conducting ongoing monitoring of transactions.

The importance of customer due diligence lies in its ability to protect both the institution and the customer by ensuring a safe and secure banking environment. It reinforces trust in the financial system and helps organizations comply with legal requirements, thus mitigating potential risks.