Ongoing Customer Due Diligence

Regulatory Shifts in CDD

Financial regulations around customer due diligence are undergoing significant transformations. In the United States, the Financial Crimes Enforcement Network (FinCEN) issued an order on February 13, 2026, granting exceptive relief from repeatedly identifying beneficial owners at each new account opening. This change aims to eliminate redundancies, especially in light of the Corporate Transparency Act's beneficial ownership information reporting requirements. Covered institutions, including banks and broker-dealers, can now focus on initial verification and updates only when risks evolve, potentially saving substantial resources.

Globally, the push for continuous monitoring is accelerating. The European Union's Anti-Money Laundering Authority (AMLA) launched consultations on regulatory technical standards for customer due diligence in early February 2026, emphasizing a risk-based approach across all obliged entities. In Australia, Tranche 2 reforms set to begin on July 1, 2026, extend anti-money laundering obligations to lawyers, accountants, and real estate agents, requiring them to implement ongoing due diligence programs. The Financial Action Task Force (FATF) also updated its lists of high-risk jurisdictions on February 13, 2026, urging enhanced scrutiny in international transactions.

The real-world impacts are profound. Financial institutions face immediate deadlines to revise policies, with non-compliance risks including hefty fines—global AML penalties exceeded $4.3 billion in 2025. For newly regulated sectors in Australia, the costs of building compliance systems could reach millions per firm. Customers might experience smoother account openings but increased transaction scrutiny, affecting privacy.

Non-obvious tensions emerge in this landscape. While reduced data collection eases burdens, it heightens reliance on advanced technologies like AI for perpetual KYC, where smaller entities struggle with implementation costs estimated at $500,000 to $2 million. Trade-offs include potential over-monitoring leading to false positives, straining customer relationships, versus under-detection enabling crimes like human smuggling, as highlighted in recent FinCEN advisories. Stakeholder conflicts arise: regulators demand efficiency, but privacy advocates warn of data overreach, and banks lobby for further simplifications amid geopolitical risks from jurisdictions like Bolivia and the British Virgin Islands added to FATF watchlists.