To apply Standard Customer Due Diligence on a risk-based approach, the bank must take account of which of the following?

• A. (i) the profile of the customer.
• B. (ii) the nature of the financial service to be provided.
• C. (iii) the distribution channel used to sell the financial service.
• D. A (ii) only.

Answer: (D)

In a risk-based approach, you adjust the level of due diligence according to where the greatest risk lies. For standard Customer Due Diligence, the most fundamental driver is the inherent risk of the financial service being offered—the nature of the service itself. Some services carry more potential for misuse than others, so the baseline CDD steps are aligned with that service risk. If the service is straightforward and low risk, standard measures suffice; if it’s higher risk, you would escalate beyond standard as needed.

Customer characteristics or how the service is sold (the channel) can influence risk assessments in practice, but for standard CDD under the risk-based framework, the central determinant is the service’s risk profile. Those other factors become more important when deciding whether enhanced due diligence is warranted or when shaping ongoing monitoring, rather than altering the baseline standard due diligence required.