Client Onboarding, Identification, and Due Diligence
From prospect to client
Onboarding is a controlled process: collect, verify, risk-rate, approve, then activate. Candidates must understand customer due diligence (CDD), simplified and enhanced due diligence (EDD), beneficial ownership identification, politically exposed person (PEP) screening, sanctions and adverse media screening, source of funds and source of wealth, and record retention of identification evidence.
Key distinctions
- Identification vs. verification: identification is what the client claims; verification is independent evidence supporting it.
- Source of funds vs. source of wealth: funds means the money for this transaction; wealth means the origin of the client's overall estate.
- Beneficial owner: the natural person who ultimately owns or controls, commonly tested at a percentage ownership threshold or by control. Always trace to a natural person; a corporate chain alone is not an answer.
- Simplified due diligence: lower risk only, still requires identification and ongoing monitoring.
- EDD: higher risk, PEPs, complex structures, higher-risk jurisdictions; requires senior approval and closer monitoring.
Traps that appear in questions
- Treating a corporate client as fully identified without tracing ownership.
- Confusing a PEP with a person merely connected to one; family members and close associates are also in scope.
- Assuming a long-standing client needs no refresh; ongoing due diligence and event-driven review still apply.
- Accepting a certified copy from an unapproved certifier.
- Forgetting that screening is continuous, not a one-off at onboarding.
Rule of thumb
If you cannot explain in one sentence who the client is, who really owns or controls the relationship, where the money came from, and why the activity makes sense, the file is not complete.
Worked example
A newly incorporated company wants to open an account. Ownership traces to a trust whose settlor is a foreign PEP. Correct handling: EDD, senior management approval, establish source of wealth, verify the PEP status and the trust's beneficial owners, and set enhanced ongoing monitoring.