Importance of CDD at Singapore Digital Banks for AML Compliance

5 mins

Singapore's digital banking industry has been booming in recent years, with the Monetary Authority of Singapore (MAS) granting licenses to several digital banks to operate in the country. However, with the rise of digital banking, the risk of financial crimes such as money laundering has also increased. According to a Monetary Authority of Singapore (MAS) report, customer onboarding has been identified as one of the most significant risk factors in money laundering and terrorist financing. In order to mitigate the risks associated with money laundering, financial institutions, including digital banks, must implement customer due diligence (CDD) procedures. This article will explain why CDD is important for digital banks in Singapore in the fight against money laundering, and how modern technology can enable effective customer due diligence programs.

What is Customer Due Diligence?

CDD is the process of verifying the identity of customers and assessing the risks associated with conducting business with them.

It is a key part of AML efforts and is designed to prevent financial institutions from being used for money laundering. As part of their CDD procedures, financial institutions must collect, verify and maintain customer identification information. This includes collecting personal data such as name, address, date of birth and contact details. Financial institutions must also assess the risk associated with each customer and determine the level of due diligence that should be applied.

Below is a graphic representation of the CDD process.

CDD Process

Digital banks in Singapore must perform CDD before entering into business relationships with customers to detect potential bad actors early in the process. By doing so, they can create barriers to prevent financial criminals from accessing accounts on their system and avoid questionable activities before they can even begin. They must collect more detailed customer data, such as name, date of birth, address and contact information. Additionally, digital banks must also verify customer identity documents, such as passport, national identity card or driver’s license.

Why is Customer Due Diligence Necessary for Digital Banks in Singapore?

Digital banks in Singapore face unique challenges when it comes to money laundering prevention. A recent survey of digital banks in Singapore showed that almost 60% of respondents had identified cases of money laundering in the past year. This demonstrates the need for digital banks to have effective customer due diligence procedures in place in order to identify and mitigate money laundering risks. 

In 2020, a Singaporean digital bank was fined for failing to perform proper customer due diligence on a suspicious transaction. The bank was found to have failed to carry out appropriate customer risk assessments, and had even approved transactions without identifying the customer’s source of funds.

In addition, the Singaporean banking authority, the Monetary Authority of Singapore (MAS), recently introduced new regulations to tighten customer due diligence at digital banks. This includes the requirement for digital banks to have a "know your customer" (KYC) process in place and to perform ongoing monitoring of customers’ transactions.

What Are the Benefits of Customer Due Diligence for Digital Banks in Singapore?

Customer due diligence is an essential tool for digital banks in Singapore to protect against money laundering. By implementing effective CDD procedures and monitoring customer activities, digital banks can detect suspicious activity and take action to prevent losses. This can help protect digital banks from financial, legal and reputational damage as a result of money laundering.

At the same time, CDD can also help digital banks build trust with customers. Lengthy onboarding process can deter potential customers and may result in lost business opportunities. By ensuring that customers are who they say they are and that their activities are legitimate, digital banks can provide a safe and secure banking experience for their customers. Thus, digital banks must streamline their onboarding process with technologies that can accurately identify bad actors and ease the onboarding journey for legitiate customers.


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CDD Solutions from Tookitaki

Successful CDD processes rely on a combination of technology and expertise. When risk profiles and criminal threats change, financial institutions must be as agile and creative in their approach to CDD as they are in any other aspect of their AML strategy. As regulators are becoming more stringent globally around AML compliance, strengthening the AML systems continues to remain among the top priorities. Tookitaki’s AML solutions such as Smart Screening and Customer Risk Scoring enables improved effectiveness of CDD and ongoing diligence with fewer resources.

The Smart Screening module of Tookitaki Anti-Money Laundering Suite (AMLS) is designed to detect potential matches against sanctions lists, PEPs, and other watchlists. It includes 50+ name matching techniques, supports multiple attributes such as name, address, gender, date of birth, and date of incorporation. It covers 20+ languages and 10 different scripts, and includes a built-in transliteration engine for effective cross-lingual matching. This module is highly configurable, allowing it to be tailored to the specific prospect, customer and counterparty screening needs of each financial institution.

Meanwhile, the Customer Risk Scoring solution is a flexible and scalable customer risk ranking program that adapts to changing customer behavior and compliance requirements. This module creates a dynamic, 360-degree risk profile of customers, helping determine the level of CDD processes required. It not only enables financial institutions to uncover hidden risks but also opens up new business opportunities.

The AMLS also has a Transaction Monitoring module, which is designed to detect suspicious patterns of financial transactions that may indicate money laundering or other financial crimes. It utilizes powerful simulation modes for automated threshold tuning, which allows AML teams to focus on the most relevant alerts and improve their overall efficiency. The module also includes a built-in sandbox environment, which allows financial institutions to test and deploy new typologies in a matter of minutes.

Stay Ahead of the Curve with Next-Gen CDD Processes

Digital banks must be vigilant in verifying customer identity information and using the latest technology to detect suspicious activities. By adhering to the proper CDD process, digital banks in Singapore can ensure compliance with AML regulations and protect their customers from financial crime.

Tookitaki's CDD solutions have been designed to provide a comprehensive and agile approach to AML compliance that can adapt to changing risk profiles and criminal threats. With Tookitaki's Smart Screening and Customer Risk Scoring modules, financial institutions can improve the effectiveness of their CDD and ongoing diligence with fewer resources. To learn more about how Tookitaki's solutions can support your business, book a demo today.