What does "reasonable grounds" actually mean when conducting Customer Due Diligence?
An objective test: a reasonable person in your position would, based on the facts available, conclude the CDD matter is established; depth scales with the customer's risk profile.
AUSTRAC's reform regime replaced the old prescriptive checklist with an outcomes-based test: you need to establish each Customer Due Diligence (CDD) matter on "reasonable grounds". The standard is objective - a reasonable person in your position would, based on the facts and information available, conclude the matter is established.
In practice, this means:
- At least one piece of verified information for each matter you need to establish (unless an exception applies).
- More information collected and verified for high-risk customers than for low-risk ones.
- More information about people associated with high-risk customers (beneficial owners, representatives) than for low-risk equivalents.
- Verification through reliable and independent sources: government registers (ASIC, ABR), the Document Verification Service, accredited digital identity providers, or original or certified copy documents.
The shift from prescriptive rules to reasonable grounds gives you more flexibility, but also more responsibility to document your reasoning. See AUSTRAC's Overview of initial customer due diligence (Reform) page.