Customer due diligence can become a stumbling block for financial institutions in this modern digital era. According to law, every bank or asset management company has to collect customer details before offering financial services. Since the know your customer (KYC) regime has tightened, banks need to be extra cautious about collecting customer details securely and when choosing customer due diligence solutions. They cannot afford to choose an unsecure or non-multi-utility diligence solution that is not multi-faceted or secured.
What is customer due diligence for financial institutions?
It is compulsory that banks and asset management firms conduct customer verification. Before disbursing a loan, a bank has the right to perform due diligence on loan applicants. Customer due diligence entails collecting the personal details of banking customers and performing risk analysis. This analysis helps banks offer loans to customers likely to repay them within the stipulated period. Fintech firms, too, need to conduct customer due diligence before extending financial services.
Financial institutions do not collect customer details on paper but via digital channels, and rely on strong customer due diligence solutions.
Approaches to choosing reliable customer due diligence solutions
- Focus on data security
A reliable customer due diligence solution focuses on data security. While banks have the right to conduct customer due diligence, data protection laws prevent them from misusing customer information. Customers trust financial firms with their personal data, and firms must understand their responsibilities relating to its storage and use. When a financial firm fails to protect sensitive customer information, the authorities concerned would impose penalties.
Financial firms could lose their reputation due to data breaches, which could be due to malicious actors intercepting customer information and using it for illegal activities.
- Look to external support for choosing the right due diligence solutions
A financial institution may have expert loan processors and risk analysts but not due diligence experts to consult when it comes to secured solutions.
- Cover all aspects of due diligence
Besides customer due diligence, banks also focus on enhanced due diligence, which refers to thorough risk analysis of selected customers. Customer due diligence solution providers focus on all these aspects.
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