CDD (Customer Due Diligence)

CDD is the foundational KYC process through which regulated financial institutions establish and verify the identity, risk profile, and legitimate business purpose of their clients. This baseline verification includes confirming legal name, date of birth, residential address, source of funds, and intended use of the account or service. CDD establishes a risk categorization that determines whether standard monitoring or enhanced procedures apply going forward. The process typically occurs at account opening but may be refreshed periodically, especially when customer circumstances change or suspicious activity is detected. Crypto exchanges and custodians implement CDD through document verification, sanctions screening, and cross-referencing against public databases and adverse media searches. Example: Kraken, a major cryptocurrency exchange, implements CDD by requiring users to provide government-issued identification, proof of address, and income verification during account creation, which is processed through automated compliance tools before trading access is granted. Why it matters for compliance: CDD serves as the critical first filter in anti-money laundering frameworks, enabling firms to identify and prevent onboarding of high-risk individuals and preventing accounts from being misused for illicit purposes from inception.

Category: compliance

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