Customer Due Diligence – How Artificial Intelligence Improves The Practice

Banking sector has seen tremendous growth in the last couple of years. It has successfully adopted the digital media for service provision which has transformed its conventional functions that were limited to keeping and lending wealth. The progress has come at a cost. With the scores of people getting on the digital platforms and using it for countless services, the customer due diligence practices have suffered a lot. That was, in part, due to the immense magnitude of the incoming information that was not cut out for manual evaluation. AI has caught up with the changing landscape of CDD. Now, it is ripe to complement human intelligence for extensive data screening endeavors.

KYC & AML Screening For CDD

Customer Due Diligence is an act of screening clients after careful verification of their identities. It is a KYC (Know Your Client) practice that is exercised mainly by financial institutions, such as banks, credit unions, insurance companies, etc. The rationale behind strict diligence is to ensure the best AML practices so that entities with high risk do not get access to the services of mainstream FIs. That’s why in its broad context, customer due diligence for banks is the main field for its study and application.


Commerzbank, a German lender, was slapped with a fine of £38m by FCA last year for failing to comply with AML guidelines. One of the main reasons for the reprimand was the “significant backlog” of existing clients who were not subjected to ongoing diligence.


The first step in CDD is identification of the client with the production of reliable documentary proof of name, photograph, address, origin, etc. In the case of Ultimate Beneficial Owner (UBO) or business relations, organizations should know the internal structure of the company before moving forward. In turn, all of the collected data needs to be vetted through numerous databases and watchlists to prevent exposed entities from onboarding.

Artificial Intelligence – One Giant Leap For Client Due Diligence

The development and application of Artificial Intelligence in the field of client due diligence has filled the gap emanating from the lack of proper tools and limitations of human screening potential. One area of diligence where AI shines specifically is on-going diligence, as CDD is not a static process that is only limited to client onboarding. Latest regulatory guidelines have made it mandatory for FIs to run periodical background checks on existing customers – hence the need to adopt AI-based KYC tools.


According to the report “Augmented Finance & Machine Intelligence” in 2018, application of AI and ML for KYC and AML compliance will result in $217 billion in cost reduction in the next decade, while strengthening the CDD regime.


AI covers all the major areas that are, either directly or indirectly, connected with the practices of gathering, processing, and storing clients’ information for AML compliance.

In the past, companies had a hard time keeping up with the changing regulatory guidelines, mainly due to the unavailability of staff and mounting costs.

Biometric Facial Recognition

Instead of collecting doctored photographs of proofs, AI allows organizations to collect and verify information in real time through biometric facial recognition. The incoming photo goes through AI-algorithms that are adept in picking up subtle abnormalities. They will flush out false positives autonomously without human supervision. This is the primary but first fort that helps in complying with customer due diligence guidelines.

Document & Address Verification

AI-systems use OCR and ICR technology to extract data from the original document while checking the information and the validity of the document simultaneously. For CDD compliance, institutions have to maintain a steady account of their clients’ information and a tool that can operate without supervision comes in handy. This cuts down the processing time to seconds from hours, resulting in streamlined internal and external data structures.


A survey by the World Economic Forum has found that over 85% of the participating financial institutions have already implemented AI systems.

Explicit Consent Through KYC Video

The regions with tougher compliance laws mandates FIs to get explicit information from the entities before moving forward with their application. For instance, if one wants to open a bank account, one has to record a video and highlight all the relevant information either in writing or verbally. This helps companies in devising a verification regimen that is in line with compliance guidelines while saving costs.

It All Boils Down To

Companies struggle to comply with regulations owing to their evolving structures and the costs to keep up with them. One such instance was the directive of the EU to corporations  in 2016, for the appointment of a Data Protection Officer (DTO) to supervise the GDPR regime. The adoption of AI-based tools for KYC and AML compliance will help the companies in saving cost in administrative operations as well as to avoid paying hefty penalties in the case of non-compliance, thus strengthening the customer due diligence structure.