KYC/CDD Workflows: From Onboarding to Ongoing Monitoring
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Key Insights
- Deep-dive into Know Your Customer and Customer Due Diligence processes — the frontline defense against financial crime.
The KYC/CDD Framework
KYC/CDD is mandated by FATF Recommendation 10 and forms the foundation of AML compliance. It requires financial institutions to:
- Identify — verify the identity of customers and beneficial owners
- Understand — the nature and purpose of the business relationship
- Monitor — ongoing transactions and update customer information
The three tiers of due diligence:
- Simplified Due Diligence (SDD) — low-risk customers, basic verification
- Customer Due Diligence (CDD) — standard risk, full identity verification + source of funds
- Enhanced Due Diligence (EDD) — high-risk customers (PEPs, high-risk jurisdictions), deeper investigation
Onboarding Workflow
Customer Applies → Identity Verification → Risk Assessment →
├─ Low Risk → SDD → Approve → Ongoing Monitoring
├─ Medium Risk → CDD → Approve → Enhanced Monitoring
└─ High Risk → EDD → Compliance Review → Approve/Reject → Intensive MonitoringKey data points collected during onboarding:
- Full legal name, date of birth, nationality
- Residential address (proof of address)
- Identification documents (passport, national ID)
- Source of funds / source of wealth
- Purpose of account / business relationship
- Beneficial ownership (for legal entities: 25%+ ownership threshold)
Ongoing Monitoring and Periodic Review
CDD is not a one-time event. Institutions must:
- Transaction monitoring — flag unusual patterns (velocity, amounts, counterparties)
- Periodic review — refresh customer information based on risk rating
- Watchlist screening — check against sanctions lists, PEP databases, adverse media
- Trigger events — re-verify when material changes occur
Risk-based approach: FATF recommends calibrating review frequency to customer risk level — high-risk customers reviewed at least annually, low-risk every 3-5 years.
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Feynman Concept Cards
Master each building block: read the ELI5, explore the analogy, work the example, find your gaps, teach it back, build it.
Customer Due Diligence is a cdd kyc concept in the Compliance pillar.
Analogy
Example
Find Gaps
Explain Customer Due Diligence as if teaching a colleague who is new to cdd kyc. Cover: what it is, how it works, and why it matters.
Create
Create a checklist that demonstrates Customer Due Diligence in a real-world cdd kyc scenario. Walk through your design decisions.
Show solution
A checklist for Customer Due Diligence should include: 1. The core components of cdd 2. How they interact 3. Expected outcomes or outputs
Know Your Customer (KYC) is a cdd kyc concept in the Compliance pillar.
Analogy
Example
Find Gaps
Explain Know Your Customer (KYC) as if teaching a colleague who is new to cdd kyc. Cover: what it is, how it works, and why it matters.
Create
Create a checklist that demonstrates Know Your Customer (KYC) in a real-world cdd kyc scenario. Walk through your design decisions.
Show solution
A checklist for Know Your Customer (KYC) should include: 1. The core components of kyc 2. How they interact 3. Expected outcomes or outputs
Data Observability is a best practices concept in the Data Engineering pillar.
Analogy
Example
Find Gaps
Explain Data Observability as if teaching a colleague who is new to best practices. Cover: what it is, how it works, and why it matters.
Create
Create a checklist that demonstrates Data Observability in a real-world best practices scenario. Walk through your design decisions.
Show solution
A checklist for Data Observability should include: 1. The core components of data observability 2. How they interact 3. Expected outcomes or outputs
Feynman Synthesis — Prove You Understand
1. The One-Pager
Explain this lesson's core idea to a smart 15-year-old. No jargon allowed.
2. The Gap Map
List 3 things you are still unsure about. Be specific.
Knowledge Check
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Hands-On Lab
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KYC Onboarding Simulator
IntermediateYou are a compliance officer onboarding a new corporate client: Alta Trading LLC, a Cyprus-registered trading company owned by a 22% shareholder who is a foreign PEP. Work through the KYC/CDD workflow and decide the risk rating and whether Enhanced Due Diligence (EDD) is required.
Flashcards
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