Customer Due Diligence, KYC, Beneficial Ownership and Enhanced Due Diligence
Domain 6 is CDD, KYC, beneficial ownership and EDD. The exam tests the four CDD measures, the 25% ownership benchmark, PEP treatment, and when simplified measures are not allowed.
Core rules
- CDD requires identifying the customer, verifying identity using reliable independent sources, identifying the beneficial owner, and understanding purpose and intended nature of the relationship.
- Beneficial ownership looks through legal persons to natural persons who ultimately own or control; 25% is a common threshold, but control can exist below it.
- EDD applies to PEPs, high-risk jurisdictions, complex or unusual transactions, correspondent relationships and new technologies.
- Ongoing monitoring must be risk-based; CDD is not a one-off onboarding file.
- Simplified measures are not permitted where ML/TF risk is high or suspicion exists.
Worked example
A company applies with one shareholder holding 30% and a nominee agreement giving a different individual effective control. The 25% test identifies the 30% shareholder as a beneficial owner, but the nominee controller must also be identified because control is an independent route. The bank should verify both, understand the ownership chain, and apply EDD if the structure is opaque or the jurisdiction is high risk.
Traps
- Treating 25% as a safe harbour when control is exercised below it.
- Checking only the customer's ID and not the beneficial owner.
- Assuming all high-risk customers are PEPs, or that EDD means simply collecting more documents.
- Using simplified CDD for a customer who is already suspicious.