What does the term "due diligence" refer to in bank compliance?

The term "due diligence" in bank compliance refers to the effort made by banks to verify the background and legitimacy of clients and their activities. This process is crucial in preventing financial crimes such as money laundering and fraud. By conducting due diligence, banks gather relevant information about clients, which includes understanding who they are, their business activities, and any potential risks they may present. This helps ensure that the financial institution remains compliant with legal requirements and protects itself from engaging with illicit actors.

The focus of due diligence is comprehensive; it goes beyond just assessing the initial client relationship to include ongoing monitoring and understanding of transactions. This approach helps banks manage risk effectively and maintain a robust compliance framework.