What is the key difference between KYC and CDD in BSA/AML programs?

What is the key difference between KYC and CDD in BSA/AML programs?

• A. KYC is ongoing monitoring and risk assessment; CDD identifies who members are.
• B. KYC involves identifying and understanding who members are; CDD involves ongoing monitoring and assessment of risk; EDD for higher-risk.
• C. KYC and CDD are identical.
• D. CDD is only for business accounts.

Answer: (B)

Know Your Customer is the broad framework used in BSA/AML to identify and understand who a customer is and to monitor their activity for risk. This includes verifying identity and staying vigilant over time as new information emerges about the customer. Customer Due Diligence is the process of gathering information to establish who the customer is and to assess and monitor the risk they may pose. For higher-risk scenarios, Enhanced Due Diligence is applied. So the key distinction is that KYC is the overall approach to knowing and continuously assessing customers, while CDD is the specific due diligence process within that program to verify identity and assess risk, with EDD used when the risk is higher. Other statements mischaracterize the relationship: one overemphasizes ongoing monitoring as the sole function of KYC, another claims KYC and CDD are identical, and another incorrectly limits CDD to business accounts.

Know Your Customer is the broad framework used in BSA/AML to identify and understand who a customer is and to monitor their activity for risk. This includes verifying identity and staying vigilant over time as new information emerges about the customer.

Customer Due Diligence is the process of gathering information to establish who the customer is and to assess and monitor the risk they may pose. For higher-risk scenarios, Enhanced Due Diligence is applied.

So the key distinction is that KYC is the overall approach to knowing and continuously assessing customers, while CDD is the specific due diligence process within that program to verify identity and assess risk, with EDD used when the risk is higher.

Other statements mischaracterize the relationship: one overemphasizes ongoing monitoring as the sole function of KYC, another claims KYC and CDD are identical, and another incorrectly limits CDD to business accounts.