356 Views

Overview

Customer due diligence or CDD, is an essential component of money laundering efforts in New Zealand. It includes making sure that transactions are legal, the clients are honest about their identity, and they understand how their business relationships work. This guide will cover different aspects of CDD, including improved CDD practices and specific rules for different types of reporting entities

What is CDD?

Customer due diligence (CDD) is a term used to describe the methods and procedures that financial institutions and other regulated entities employ to confirm the identity of their clients. CDD further evaluates the probable risks of participating in unlawful activities, specifically money laundering and terrorism financing. 

What does CDD denote in fighting money laundering? 

CDD plays a crucial role in minimising money laundering and terrorism financing. Institutions can avoid being used for illicit purposes by detecting and reporting suspicious activity by authenticating customer identities and monitoring their financial activities. 

CDD Requirements in New Zealand  

The anti-money laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) governs CDD requirements in New Zealand. The requirements for implementing CDD measures are outlined in this legislation and apply to reporting entities such as banks, financial institutions, and other regulated businesses.

CDD for Different Entities

CDD for Trusts  

With several levels of ownership, trusts can have complex structures. Therefore, verifying the identities of beneficiaries, settlors, trustees, and any other individuals having control over the trust is a complicated but necessary part of CDD for trusts.  

CDD for Partnerships and Sole Proprietors  

When it comes to the required CDD for partnerships and sole proprietorships, it is mandatory to verify each trader or partner’s identity. This denotes gathering data on the operations of the company and determining the probability of money laundering.  

CDD for Limited Entities

CDD procedures that concentrate on identifying the general and limited partners are necessary for limited partnerships. This guarantees that the financial activities of each partner in the partnership are understood and that they are all verified.

CDD for Businesses  

The beneficial owners and directors must be identified when performing CDD for corporations. This involves being aware of the ownership structure and the type of business operations of the organisation. 

When to Use Improved CDD  

With a greater chance of money laundering or terrorist financing, implementing enhanced CDD becomes indispensable. Transactions involving politically exposed persons (PEPs), high-risk nations, and intricate corporate structures fall under this category. Enhanced CDD includes extra steps like getting more specific customer data, monitoring more frequently and enforcing stronger verification procedures. 

Comprehending Beneficial Ownership

Despite not having their names on official records, the people who ultimately own or control an entity are referred to as beneficial owners. Determining the beneficial owners is essential to the success of CDD

Process for Finding Beneficial Owners  

  • Compiling Ownership Data: Compiling information about the ownership composition.  
  • Identity Verification: Assuring the accuracy of the data supplied.  
  • Ongoing Monitoring: Maintaining current documentation and keeping an eye on ownership transfers.  
  • Utilisation: Monitoring and data verification using cutting-edge technology

Technology Advances for CDD 

Technology plays a vital role in improving CDD procedures. Advanced solutions like analytics and automated procedures support the identification of suspicious activity, regulatory compliance, and customer identity verification. Here are some of the benefits: 
 
• Efficiency: Verification procedures that are quicker and more precise.  
• Accuracy: Lowering the possibility of human error.  
• Scalability: Capable of efficiently managing substantial amounts of client data.  

KYC and KYB Services by NameScan 

Comprehensive Know Your customer (KYC) services from NameScan can assist organisations in meeting CDD regulations. NameScan’s solutions include sophisticated screening tools for verifying customer identities and identifying beneficial owners, which helps improve the effectiveness and precision of CDD procedures.  

Important Dates and Regulatory Shifts

The second set of regulation changes will be effective from June 1, 2024. In addition to informing staff members of the updates and how they might impact them, you should be aware of the changes and ensure that they are included, where necessary, into your policies and procedures.  


Institutions must assess and revise their AML/CFT policies and procedures, considering these changes. Maintaining compliance and reducing the risk of money laundering requires ensuring that your company is trained and aware of these updates. 

At a Glance 

The key component of New Zealand’s anti-money laundering process is customer due diligence. Financial institutions and reporting entities can greatly lower the risk of money laundering and guarantee regulatory compliance by enhancing their CDD processes for high-risk situations. A safer and more secure financial environment will result from the further strengthening of CDD processes using technology and adherence to best practices.

FAQs  

What is Customer Due Diligence (CDD)? CDD involves verifying clients’ identities and assessing the risk of money laundering or terrorist financing. 

Why is CDD important in New Zealand? CDD is crucial to fighting money laundering and terrorism financing by ensuring that financial institutions and other organisations comply with AML regulations. 

What is enhanced CDD? Enhanced CDD involves additional safeguards, such as stricter verification procedures and more detailed data collection, for high-risk customers or transactions. 

How are beneficial owners identified? Beneficial owners are identified by collecting and verifying information regarding individuals, who ultimately own or control an entity. 

What challenges does CDD present? Challenges include complex ownership structures, data quality issues, and regulatory compliance. 

How does technology improve CDD? Technology enhances CDD by providing scalable, accurate, and efficient methods for verifying customers and monitoring transactions.