Customer Due Diligence (CDD)

Definition

Customer Due Diligence (CDD) is the set of checks required by law to confirm the identity of a customer and, where applicable, their beneficial owner. It is a core element of the UK’s Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, which apply to all regulated businesses.

CDD helps determine whether a customer presents a low, medium, or high risk, and informs whether further checks, such as Enhanced Due Diligence (EDD), are necessary.

Why it matters

CDD is a legal requirement for regulated firms and a key tool in preventing money laundering, terrorist financing, and other financial crimes. Without it, businesses risk facilitating illicit activity, incurring regulatory penalties, and damaging their reputation.

From May 2025, sanctions screening is also mandatory for certain high-value transactions, meaning CDD will need to incorporate checks against UK and international sanctions lists.

How CDD works in the UK

1. Identify the customer – Obtain their name, date of birth (if an individual), and address.
2. Verify identity – Use reliable, independent sources (e.g., passports, driving licences, Companies House records).
3. Identify beneficial owners – For corporate clients, determine who ultimately owns or controls the business.
4. Understand the purpose and intended nature – Establish why the customer wants your services and how they intend to use them.
5. Ongoing monitoring – Keep information up to date and review transactions for consistency with the customer’s profile.
6. Apply EDD where required – Use stricter checks for high-risk clients, PEPs, or complex transactions.

Examples and use cases

• Banks – Verifying new personal and business account holders.
• Law firms – Checking clients before property purchases or large transfers.
• Estate agents – Confirming the identity of buyers and sellers in high-value transactions.
• Luxury goods dealers – Verifying customers for transactions above the regulatory threshold.

Mini-FAQ

Q: How is CDD different from KYC?
A: In the UK, CDD is the formal legal requirement under AML regulations. KYC is a broader business term for knowing and understanding your customer, which often overlaps with CDD.

Q: When must I carry out CDD?
A: Before entering a business relationship, before carrying out an occasional transaction over the threshold, when you suspect money laundering or terrorist financing, or when you doubt the reliability of previously obtained identification.