Customer Due Diligence (CDD) – strengthening financial integrity through smarter compliance
Customer Due Diligence (CDD) lies at the heart of every financial institution’s Anti-Money Laundering (AML) framework. It ensures that businesses truly know who they are dealing with — and that every customer relationship is evaluated for risk, legitimacy, and transparency.
The objective is simple: prevent criminals, terrorists, and sanctioned individuals from exploiting the financial system. But achieving that objective across a global, digital, and privacy-regulated environment is anything but simple.
What CDD involves
Customer Due Diligence refers to the process of verifying a customer’s identity, understanding the nature of their activities, and assessing their risk level. It applies to individuals, corporations, and beneficial owners behind complex ownership structures.
CDD typically includes:
CDD typically includes:
- Identity verification: validating personal and corporate details against trusted databases.
- Beneficial ownership checks: identifying individuals who ultimately control or benefit from an entity.
- Risk profiling: assigning a risk score based on geography, occupation, transaction type, or product usage.
- Ongoing monitoring: tracking changes in customer behavior and updating risk ratings accordingly.
When higher risk is detected, institutions must perform Enhanced Due Diligence (EDD) — a deeper investigation often involving source of funds, wealth verification, and politically exposed person (PEP) screening.
The regulatory framework
CDD requirements are embedded in every major AML law and directive.
- The Financial Action Task Force (FATF) Recommendation 10 establishes the global baseline for customer due diligence.
- The EU’s AMLD6 Directive extends CDD obligations to beneficial ownership and ongoing monitoring.
- The EBA Guidelines require financial institutions to apply risk-based CDD according to customer type, transaction pattern, and jurisdictional exposure.
These rules have a common goal: ensuring institutions can verify who their customers are and detect when their risk profiles change.
Why CDD has become a strategic priority
According to PwC’s Global Economic Crime and Fraud Survey 2024, over 50% of financial institutions cite weak customer due diligence as their biggest compliance gap.
The reasons are clear:
The reasons are clear:
- Complex ownership structures: shell companies and layered investments hide ultimate control.
- Evolving criminal methods: digital onboarding and virtual assets create new entry points for laundering.
- Data fragmentation: identity and transaction data often reside in separate systems.
- Regulatory scrutiny: penalties for AML breaches increasingly target governance failures, not just isolated violations.
Strong CDD is no longer a regulatory checkbox — it’s a core operational capability that underpins financial resilience and brand trust.
Technology’s role in modern CDD
CDD is moving from manual verification to automated, data-driven monitoring. Financial institutions now rely on technology to collect, analyze, and cross-reference data across multiple systems.
Key enablers include:
Key enablers include:
- AI and machine learning: for pattern recognition and risk scoring.
- Natural language processing: to analyze unstructured data such as adverse media reports.
- Digital identity verification: for onboarding customers remotely and securely.
- KYC utilities: shared industry platforms for standardizing CDD checks across institutions.
- Privacy-preserving computation: to enable collaboration between banks and regulators without exposing sensitive customer data.
These tools reduce false positives, improve detection accuracy, and enable continuous monitoring — a critical shift as regulators expect real-time compliance.
The link between CDD, AML, and CTF
CDD is the entry point for all AML and CTF compliance. Every risk model, transaction monitoring system, and suspicious activity report (SAR) depends on the accuracy of CDD data.
If the initial customer profile is flawed or outdated, every subsequent risk assessment is compromised. This is why regulators emphasize ongoing due diligence — continuous reassessment of customer data and activity.
Institutions adopting Perpetual KYC (pKYC) models are extending CDD into real-time monitoring, where customer risk is updated automatically as new data becomes available.
If the initial customer profile is flawed or outdated, every subsequent risk assessment is compromised. This is why regulators emphasize ongoing due diligence — continuous reassessment of customer data and activity.
Institutions adopting Perpetual KYC (pKYC) models are extending CDD into real-time monitoring, where customer risk is updated automatically as new data becomes available.
“Customer due diligence is where compliance begins and where most failures start. The future of CDD lies in intelligent automation and cross-institution collaboration — done securely and ethically.”
– Head of Compliance Innovation, European Commercial Bank
This reflects a clear trend: compliance success now depends on how well data is shared and protected, not just how much is collected.
Challenges in achieving effective CDD
- Data silos – Fragmented systems make it difficult to maintain a single customer view.
- Cross-border privacy laws – Data-sharing restrictions hinder group-level risk assessment.
- False negatives – Limited data visibility allows suspicious entities to remain undetected.
- Rising compliance costs – Manual verification remains labor-intensive and inefficient.
According to Deloitte’s 2024 Financial Crime Benchmarking Report, CDD-related costs represent up to 30% of total AML compliance spending for large financial institutions.
The Partisia approach
Customer Due Diligence requires both transparency and confidentiality — two goals often at odds. Partisia’s privacy-preserving data collaboration platform solves this by using Multi-Party Computation (MPC) to allow financial institutions and regulators to verify identities, monitor risk, and exchange intelligence securely.
With MPC, institutions can:
With MPC, institutions can:
- Cross-check customer information across borders without sharing raw data.
- Detect high-risk overlaps between counterparties or ownership structures.
- Maintain full compliance with GDPR, FATF, and DORA while improving detection accuracy.
Partisia enables financial institutions to achieve the next generation of CDD — intelligent, continuous, and privacy-safe — aligning compliance integrity with modern data ethics.
