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Although KYC (Know Your Customer) and CDD (Customer Due Diligence) are very similar, there are some nuances or differences between them that we will address in this article.

KYC and CDD policies are the cornerstone of any AML (Anti Money Laundering) policy developed in a company and both hinge on the need to verify the identity of the customers that deal with companies affected by AML regulations.

To put it simply, know-your-customer (KYC) is about performing customer due diligence (CDD), i.e. verifying the identity of a customer. It is therefore difficult to distinguish between KYC and CDD, because the latter is an integral part of the former.

In that sense they could be considered the same, but are they or are they not the same thing?

So how do CDD and KYC differ?

KYC specifies the checks that are carried out at the start of a customer relationship to identify and verify that such customers are who they say they are. This is especially relevant for companies that are subject to AML (Anti Money Laundering) regulations.

Know Your Customer procedures therefore allow the creation of a customer’s risk profile by retrieving their data before initiating a business relationship, usually in a digital onboarding process by collecting their personal data and identity document.

Customer Due Diligence, on the other hand, allows assessing whether the information provided by customers during registration is correct. In addition, CDD checks must be performed on an ongoing basis for as long as there is a customer relationship, requiring a record of transactions to be kept and updated.

KYC checks are therefore made at the early stage of establishing business relationships, when we screen potential customers, while Customer Due Diligence (CDD) is an ongoing monitoring of suspicious activities aimed at money laundering and both are a crucial part of anti-money laundering (AML) program.

At this point, I’m sure your mind is blowing… okay, now you’re talking about AML? And how is it different from KYC?

 

What is the difference between KYC and AML?

The main difference between AML and KYC is the following:

  • AML is a broader term describing the framework responsible for the monitoring and control of all suspicious actions to prevent money laundering.
  • KYC refers to the process of verification and identification of clients, implemented with different tools and software.

In addition, AML focuses more on governmental procedures and measures, while KYC refers to the way in which companies and businesses comply with these regulations.

pin We must assume that regulatory definitions are not globally consistent and that financial institutions may be subject to different rules depending on their jurisdiction and regulatory framework.

It is thus important to be aware of the specific legislation in the countries where you operate.

pin We must assume that regulatory definitions are not globally consistent and that financial institutions may be subject to different rules depending on their jurisdiction and regulatory framework.

It is thus important to be aware of the specific legislation in the countries where you operate.

CDD (Customer Due Diligence) in Spain

KYC rules are based on a policy of customer identification and acceptance, continuous monitoring of the relationship with these customers and risk management. But this translates in Spanish law into normal due diligence measures that will be applied gradually depending on the risk of the obliged party.

SEPBLAC is the Financial Intelligence Unit in Spain, being the supervisor for the prevention of money laundering and terrorist financing and in charge of defining the due diligence measures to be applied.

These measures are simplified in some cases and enhanced in other cases where the operations have a higher risk based on the country or geographical location, the risk inherent to the client itself and the risk related to the type of transaction to be carried out.

Due diligence obligations are therefore aimed at identifying and getting to know those natural or legal persons who wish to do business with regulated entities.

Sepblac authorises companies to carry out these identification measures by electronic or telematic means, such as video-identification.

Authorisation of non-face-to-face verification procedures in Spain

Article 21.1.d) of the Regulation of Law 10/2010 of 28 April, approved by Royal Decree 304/2014 of 5 May, rules that obliged subjects may establish business relationships or perform transactions via telephone, electronic or telematic means with customers who are not physically present, when the customer’s identity be evidenced by secure procedures for customer identification in remote transactions, provided that such procedures have been previously authorized by Sepblac.

In accordance with this authorisation, Sepblac has established a series of minimum specifications with respect to customer identification procedures for non-face-to-face transactions, allowing, among others, video-identification.

How can Mobbeel help?

We are an experienced identity verification provider with a solution that helps to meet new regulations, in particular those relating to CDD and KYC obligations.

MobbScan helps banks and companies within the financial industry to offer a simple, KYC-compliant onboarding experience that minimises the risk of fraud.

In a few seconds, our solution automatically allows for:

  • The capture and validation of the identity document.
  • Verification of the client identity through facial biometrics with liveness detection (proof of life).

 

If you want to know more about MobbScan, our KYC solution, do not hesitate to contact us, and if you liked the article, share it and add value to your followers!

 

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