52 Questions
What is the main purpose of Customer Due Diligence (CDD) investigation?
To provide a risk rating for all customers and take necessary actions
Which of the following institutions is NOT subject to the Act on the prevention of money laundering and financing of terrorism?
Supermarkets
What is the relationship between Customer Due Diligence (CDD) and Transaction Monitoring?
They are two separate main work streams in the Know Your Customer workfield
What is the role of a CDD analyst in the CDD process?
To conduct investigations and provide risk ratings for customers
What is the main objective of the Act on the prevention of money laundering and financing of terrorism?
To prevent money laundering and terrorist financing
What is the outcome of the CDD process?
A risk rating for all customers
What is the primary goal of the CDD analyst?
To use policies to take a calculated risk
What is the purpose of the Onboarding work stream?
To find out whether a customer complies with the institution's policies
What triggers an Event Driven Review?
A signal that a customer has been involved in financial crime
What is the purpose of the Client Acceptance Review Committee (CARC)?
To make decisions about a possible client departure or measures
What is the purpose of the Periodic Review work stream?
To assign a new risk rating to a customer
What is the purpose of Transaction Monitoring?
To initiate an Event Driven Review
What is the role of the client exit officer?
To put all processes in place to stop the relationship with the customer
What is the purpose of the Exit work stream?
To stop the relationship with the customer
What are the three types of investigation in the Customer Due Diligence domain?
Simple, Standard, and Enhanced
What is the purpose of collecting customer information by a CDD analyst?
To investigate a customer's integrity risks
What is the primary purpose of a simplified client due diligence investigation?
To reduce costs and administrative burdens for the anti-money laundering institution and the client
What is the main difference between a standard investigation and an enhanced due diligence investigation?
The level of risk associated with the client's business activities
In which type of investigation is the origin of the assets of the client not verified?
Simplified client due diligence investigation
What is the purpose of the Identification and Verification process in a CDD investigation?
To confirm the existence of the client
In which type of client is the Ownership and Control structure taken into scope of the investigation?
Entities
What is the main purpose of an enhanced due diligence investigation?
To take adequate measures to manage the risks posed by the client
In which type of client is the Business activities component of the CDD investigation used to describe how the person gets their money?
Individuals
What is the primary difference between a standard investigation and a simplified investigation?
The extent of the investigation
What is the purpose of the heightened scrutiny in an enhanced due diligence investigation?
To better understand the risks posed by the client
What is the primary purpose of a CDD investigation?
To identify and verify the client and to perform risk assessment
What is the purpose of the selfie verification process for natural persons in the ID&V process?
To ensure the customer is the same person as the one in the identity documents
What is the purpose of the Ownership & Control structure section in the CDD process?
To identify the ultimate beneficiary of the company
What is the percentage of ownership and/or control required to identify and verify a UBO in high-risk sectors or countries?
10%
What is the term used to describe the person who is ultimately in charge of decisions within the company?
Ultimate Beneficial Owner
What is the purpose of the Business Activities section in the CDD process?
To identify the customer's business activities and income generation
What is the purpose of the Product & Services section in the CDD process?
To determine the products and services used by the customer and the risks associated with them
What is the purpose of the Transaction Risk section in the CDD process?
To determine the transaction patterns and risks associated with the customer's transactions
What is the purpose of the Country Risk section in the CDD process?
To investigate the countries to which outbound transactions go and the countries in which activities take place
What is the term used to describe the executives of the client entity who are responsible for the day-to-day management of the company?
Senior Manager Officials
What is the term used to describe a situation where no UBO can be determined because the UBO requirements cannot be met?
Pseudo UBO
What is the primary purpose of investigating Source of Funds in the risk assessment?
To determine the client's income
Which section of the risk assessment deals with the possibility of tax avoidance?
Tax Risk
What is the term used to describe the investigation of a client's policy and vision on sustainability?
ESG
What is the purpose of Adverse Media screening in the risk assessment?
To screen for negative news about the client
What is the term used to describe a person who holds or has held a Prominent Political role less than 2 years ago?
PEP
What is the outcome of identifying a PEP in the risk assessment?
Further investigation to determine the risk of bribery
What is the primary purpose of the Source of Wealth section in the risk assessment?
To determine how the client's wealth was generated
What is the purpose of reviewing financial statements in the Source of Funds section?
To verify the origin of the client's money
What is the purpose of using an organization chart in the risk assessment?
To identify potential tax risks
What is the outcome of identifying a sanction violation in the risk assessment?
Notification of the Compliance department
What is the primary focus of the rule-based approach in Know Your Customer?
Compliance with regulations and laws
What is the main advantage of the risk-based approach in Customer Due Diligence?
It enables institutions to focus their resources on customers who pose the greatest risk
What is the key difference between the rule-based and risk-based approaches in Customer Due Diligence?
The use of professional judgement
What is the primary goal of the risk-based approach in Customer Due Diligence?
To better understand and manage the risks of customer relationships
What is the relationship between the risk tolerance of an institution and the approach used in Customer Due Diligence?
The risk tolerance determines the type of approach used
What is the consequence of focusing solely on compliance with regulations and laws in Customer Due Diligence?
It leads to a limited view of the customer and the risks associated with the relationship
Study Notes
Customer Due Diligence (CDD)
- CDD is a process used by organizations to comply with the Act on the prevention of money laundering and financing of terrorism
- The purpose of CDD is to identify and verify customers, gain knowledge about them, and understand how they use products and services
- Institutions subject to the Act include banks, insurance companies, investment institutions, law firms, and casinos
Role of a CDD Analyst
- A CDD analyst collects customer information, communicates with stakeholders, and consults various sources to gather information
- The analyst's primary goal is to take calculated risks and mitigate potential threats
- The analyst may need to perform further investigations, known as Enhanced Due Diligence (EDD), for higher-risk customers
Work Streams in CDD
- Onboarding: the initial investigation conducted to assess a customer's integrity and risk profile
- Event-Driven Review: a review triggered by specific events or changes in a customer's profile
- Periodic Review: a regular review of customers to reassess their risk profiles
- Exit: a process for terminating a customer relationship when a customer poses an unacceptable risk
Types of Investigations
- Simple Due Diligence (SDD): a lighter version of the process for low-risk customers
- Standard Due Diligence (SDD): a more extensive investigation for medium-risk customers
- Enhanced Due Diligence (EDD): an in-depth investigation for high-risk customers
CDD Investigation Structure
- Identification and Verification: confirming a customer's identity and existence
- Purpose and Nature of Relationship: understanding the customer's purpose and scope
- Ownership & Control Structure: identifying the customer's organizational structure and beneficiaries
- Business Activities: describing the customer's business operations and sources of income
- Product and Services: documenting the products and services used by the customer
- Transaction Risk: assessing the risks associated with a customer's transactions
- Country Risk: evaluating the risks associated with a customer's country of operation
- Source of Funds: researching the customer's income and sources of wealth
- Sustainability Risk: assessing the customer's environmental, social, and governance practices
- Tax Avoidance Risk: identifying potential tax avoidance risks
- Adverse Media: screening the customer for negative news and reputation risks
Risk Approach
- Principle-Based Approach (Rule-Based): focusing on strict compliance with regulations and laws
- Risk-Based Approach: focusing on understanding customer risks and adjusting procedures accordingly
Learn the basics of Customer Due Diligence (CDD), a key component of Know Your Customer (KYC) process. This course covers the role of a CDD analyst, investigation topics, and structure. Discover the workflows and types of investigations involved in CDD.
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