Crypto glossary
Customer due diligence (CDD and EDD)
Customer due diligence (CDD) is the set of identity and risk checks firms must carry out on clients; enhanced due diligence (EDD) applies to higher-risk cases.
Under anti-money laundering rules such as the EU AML directives and regulation and the US Bank Secrecy Act, regulated firms, including crypto exchanges and custodians, must identify customers, verify their identity, understand the purpose of the relationship and monitor it over time. For companies, this extends to identifying beneficial owners, a process often called know your business (KYB).
The depth of checks depends on risk. Simplified due diligence may apply to low-risk products, standard CDD covers most retail customers and enhanced due diligence (EDD) applies to politically exposed persons, customers from high-risk countries on the FATF lists, large or unusual transactions and complex structures. EDD typically involves documentation of source of funds and source of wealth, senior management approval and closer monitoring.
For crypto users, CDD explains why an exchange might suddenly ask for payslips, tax returns or explanations of on-chain activity. Refusing to provide information can lead to restricted or closed accounts, since firms cannot keep customers whose risk they cannot assess.
Example
A business opens a corporate account at a European exchange. Beyond the director's ID, the exchange requests the company registry extract, the shareholder structure and the identity of everyone owning more than 25%.