According to the Basel Committee on Banking Supervision standards, the following statements best describe sound practices in relation to customer due diligence (CDD) policies and procedures:
Banks should take into consideration the occasional banking transaction or the size/level of assets to build an understanding of the customer’s profile and behavior. This is because the nature and frequency of transactions and the size of the account balance may indicate the level of risk associated with the customer and the need for ongoing monitoring1
Banks should develop and implement clear acceptance policies and procedures to identify the types of customer that are likely to pose a higher risk of financing terrorism or money laundering. This is because banks should not enter into or maintain relationships with customers who pose unacceptable risks to the bank or the financial system. Banks should also apply a risk-based approach to CDD and apply more stringent measures to higher-risk customers12
Banks should implement enhanced due diligence measures for entering business relationships with high-risk customers, such as approval by senior management. This is because banks should ensure that they have adequate information and controls to manage the risks posed by such customers and to comply with the relevant laws and regulations. Senior management should be involved in the decision-making process and be accountable for the outcomes12
1: Basel Committee on Banking Supervision, Consolidated KYC Risk Management, October 2004, page 6-7. 2: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8-9.
