Common Ongoing Customer Due Diligence (OCDD) Challenges & How to Overcome Them

Ongoing Customer Due Diligence (OCDD) is a cornerstone of Anti-Money Laundering (AML) compliance, ensuring financial institutions actively monitor customer activity to identify and prevent financial crime. But making OCDD work in practice is far from straightforward.

Financial institutions face a host of challenges. Regulatory expectations are constantly evolving, transaction volumes are surging, and criminals are becoming ever more sophisticated. On top of this, data management inefficiencies create further hurdles, making it harder for compliance teams, payment providers, and financial professionals to stay ahead. 

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1. AML Challenges & Compliance

Morgan Stanley recently came under fire for failing to maintain adequate anti-money laundering (AML) controls in its wealth management division. The issue? A lack of proper due diligence on high-net-worth clients, allowing individuals with questionable backgrounds to hold accounts without sufficient risk assessments. Regulators weren’t happy, and now the firm faces investigations and mounting pressure to tighten its compliance processes.

This case is a prime example of why ongoing customer due diligence is so critical. Compliance in financial services isn’t a box-ticking exercise at onboarding—it’s a continuous process that financial institutions must stay on top of.

Some of the biggest challenges include:

• Regulatory Complexity – With AML rules differing across jurisdictions, achieving a standardised compliance framework is easier said than done.
• Evolving Threats – Criminals are constantly finding new ways to exploit loopholes, staying one step ahead of traditional compliance measures.
• Resource Constraints – Many firms simply don’t have the people or technology to conduct robust, ongoing due diligence at scale.

Getting this right isn’t just about avoiding fines—it’s about protecting your business, maintaining trust, and staying ahead of financial crime.

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Solution: Leverage Automation & AI

Technology is transforming OCDD by automating labor-intensive processes and enhancing compliance efficiency. Financial institutions should integrate AI-driven compliance tools to:

• Automate Transaction Monitoring: AI-powered systems can analyse vast amounts of transaction data in real time, detecting suspicious patterns without human intervention.
• Enhance Risk Scoring Models: Machine learning algorithms refine risk assessments by identifying previously undetected trends in customer behaviour.
• Streamline Regulatory Reporting: Automated compliance tools generate reports that align with regulatory requirements, reducing manual errors and improving accuracy.

By embracing automation, institutions can improve compliance efficiency while minimising costs.

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2. Continuous Monitoring & Risk Assessment

Starling Bank, one of the UK's leading digital banks, faced regulatory fines after failing to adequately monitor high-risk customers. While the bank had an Anti-Money Laundering framework in place, it lacked sufficient transaction monitoring. This gap allowed potentially suspicious activities to go unnoticed for extended periods, ultimately leading to enforcement actions and reputational damage.

Essentially, effective ongoing customer due diligence is simply unachievable without continuous transaction monitoring and proactive risk assessment.

Some of the key challenges in continuous monitoring include:

• High Transaction Volumes: Financial institutions handle millions of transactions daily, making manual oversight virtually impossible.
• Identifying Beneficial Ownership: Criminals often use shell companies and intermediaries to hide ownership structures, complicating detection.

Without robust monitoring systems, institutions remain exposed to both regulatory penalties and the heightened risk of financial crime. This highlights the importance of staying ahead of the curve, both in terms of compliance and security.

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Solution: Adopt a Risk-Based Approach

A risk-based approach, as promoted by the Financial Action Task Force (FATF) , ensures that financial institutions allocate resources effectively and focus on high-risk customers. This strategy involves:

• Customer Risk Profiling: Customers should be classified into risk categories based on their transaction behaviors, geographic locations, and industry associations.
• Real-Time Risk Updates: A customer’s risk level should be continuously reassessed based on their ongoing activities, rather than relying solely on initial onboarding data.
• Enhanced Due Diligence (EDD) for High-Risk Entities: High-risk customers require deeper scrutiny, including frequent account reviews and additional verification steps.
• Periodic Policy Adjustments: Risk management in OCDD should be reviewed regularly to incorporate new regulatory updates and emerging financial crime tactics.

A risk-based approach ensures that resources are directed where they are most needed, reducing unnecessary compliance costs while enhancing security.

3. Managing Customer Data & Documentation

Wise, a leading fintech payments firm, faced a strong rebuke from European regulators over deficiencies in its KYC (Know Your Customer) and customer data verification processes. The company was found to have failed in verifying customer addresses to an adequate standard, raising concerns about its ability to detect potential financial crime. This regulatory scrutiny prompted Wise to strengthen its compliance framework and improve its data management practices.

Effectively managing customer data is a key challenge in ongoing customer due diligence. Financial institutions encounter several obstacles:

• Data Fragmentation: Customer information is often dispersed across multiple systems, leading to inconsistencies and inaccuracies.
• Outdated Records: Without regular updates, customer profiles can become unreliable, increasing compliance risks.
• Regulatory Reporting Demands: Institutions are required to produce accurate reports, often requiring extensive data reconciliation efforts.

To stay compliant and carry out effective due diligence, businesses need solid data management strategies in place.

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Solution: Implement Strong Data Management Practices

Proper data management is critical to ensuring effective ongoing customer due diligence. Financial institutions should:

• Centralise Customer Information: Using a unified data management system prevents inconsistencies and ensures that all departments have access to up-to-date customer information.
• Leverage Blockchain for Data Integrity: Blockchain technology can enhance the security and transparency of customer records, reducing the risk of fraud and data manipulation.
• Use Predictive Analytics: Advanced data analytics can identify potential compliance risks before they escalate, enabling proactive intervention.
• Ensure GDPR & Data Privacy Compliance: Institutions must balance data security with privacy regulations, ensuring that customer information is protected while meeting compliance requirements.

A well-structured data management framework strengthens compliance and improves operational efficiency.

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4. Ensuring Robust Know Your Customer (KYC) Processes

Entain, the parent company of Ladbrokes, found itself in hot water over allegations that it accepted more than $152 million in wagers from customers with suspected criminal ties. The company was accused of failing to carry out proper Know Your Customer (KYC) checks, which allowed high-risk individuals to place substantial bets without adequate background scrutiny. This sparked legal action and drew closer regulatory attention.

This case serves as a stark reminder of the dangers associated with poor KYC practices, such as:

• Failure to Identify High-Risk Customers: Weak onboarding procedures significantly increase the risk of financial crime.
• Inadequate Enhanced Due Diligence (EDD): High-risk clients need to be carefully vetted, yet many organisations fall short in their approach.
• Document Manipulation & Fraudulent Identities: Criminals know how to exploit gaps in KYC systems to avoid detection.

Strengthening KYC measures is not just a legal obligation, but an essential part of ongoing due diligence to protect businesses and prevent abuse.

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Solution: Strengthening Compliance Training

Compliance effectiveness depends on a well-trained workforce. Institutions should:

• Conduct Regular AML Training: Employees must stay informed about the latest regulatory developments and financial crime tactics.
• Promote Cross-Department Collaboration: Compliance should not operate in isolation—fraud prevention, risk management, and customer service teams should work together.
• Encourage a Culture of Compliance: Employees should be incentivised to report suspicious activities, fostering a proactive approach to risk mitigation.
• Utilise Gamified Training Tools: Interactive simulations and real-world case studies can improve staff engagement and knowledge retention.

A strong compliance culture reduces institutional risk and enhances regulatory trust.

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Conclusion

By implementing automated monitoring systems, adopting a risk-based approach, strengthening data management, and fostering a compliance-first culture, financial institutions can enhance their OCDD frameworks. Proactive compliance strategies not only prevent regulatory penalties but also protect the integrity of the financial ecosystem.