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Standard Due Diligence – Part 5 in a Series

Your Customer Due Diligence Program – Time to Fill in the Gaps: Part Five

So far in this series we’ve addressed customer due diligence policies and procedures and their importance, CIP, and the customer risk profile – all components of your customer due diligence program. Now, we’ll spend a brief moment on ensuring that your bases are covered regarding standard due diligence.

There are three practical parts to the standard due diligence process with your customers that are worthy of your time for ensuring that no gaps exist in your current program and processes. First, to set the stage, let’s remind ourselves what is noted in the FFIEC BSA/AML Examination Manual (Manual) regarding standard due diligence (aka customer due diligence or CDD):

“The objective of CDD should be… to predict with relative certainty the types of transactions in which a customer is likely to engage. These processes assist… in determining when transactions are potentially suspicious.”

The standard due diligence process is closely tied to the process of CIP with a new customer. CIP is the first step in knowing your customer – the who. Step two involves the standard due diligence process in understanding the what, where, how, why, and when related to the who. Let’s look at this in three practical parts…

Coverage

Does the standard due diligence process apply to any customer you want to review? Not at all. This process applies to all of your customers. More importantly, this process of review should occur at the relationship level, not the customer level.

Application

Should your compliance team be the only individuals involved with the standard due diligence process? Absolutely not. This process and corresponding policies and procedures need buy in by all employees. Why? Because this process is closely tied to your suspicious activity monitoring and reporting, which involves all employees at your organization.

Process

So, what does the standard due diligence process look like? Generally, like this…

Step ONE:
Who

CIP – The initial step in knowing who your customer is

Step TWO:
What, where, how, why, and when

Define expected activity through the customer risk profile, which sets the baseline activity to which future activity is measured, evaluated, and deviations noted

Actual activity through normal channels

Identify deviations to determine if activity is expected, unusual, or suspicious

Follow through by gathering more information and asking questions

Document and decide if further enhanced monitoring is necessary based on strengths and areas of deviation identified

Ongoing monitoring based on risk, which is now enhanced due diligence

Again, there are a variety of ways to accomplish standard due diligence; so, diving any further would be outside our time limits. However, the above highlights provide the right direction to move to ask questions and review your program and processes. Next time, we’ll discuss the beneficial ownership piece to customer due diligence.

 

Around the Industry:

Effective Now:

Check out this announcement from the Federal Reserve made earlier this month, specifically on civil money penalties for mortgage servicing deficiencies.

MCM Q&A

Remember that the CFPBs Supervisory Highlights issues are always a good way to refresh knowledge – check this one out on Mortgage Servicing from the October 2017 issue of Mortgage Compliance Magazine.

 

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