What is EDD?
Enhanced Due Diligence (EDD) is a risk mitigation strategy that financial institutions and other regulated industries use to identify and manage higher-risk customers and clients. EDD is a more intensive process than standard due diligence and involves more thorough identification, verification, and monitoring of a client’s information.
Going beyond standard KYC and KYB procedures, EDD requires a deeper understanding of a customer’s identity and business operations. EDD is typically used when there is a higher risk of financial crime, such as money laundering or terrorist financing, associated with a customer or transaction.
EDD is necessary when dealing with high-risk clients, such as politically exposed persons (PEPs), sanctioned individuals or entities, or clients from high-risk countries. In these cases, standard KYC procedures may not provide adequate information to assess the client’s risk, and EDD may be necessary.
EDD is a process that involves obtaining additional information about a customer or transaction to identify and mitigate potential risks associated with financial crime. This may involve conducting more extensive background checks and verifying the source of funds to ensure they are not derived from illegal activities.
What are the steps required for an effective EDD?
1. Risk assessment
The first step in conducting an effective EDD is to conduct a risk assessment. This involves evaluating the level of risk associated with a customer or transaction and determining the level of due diligence required to mitigate that risk.
2. Collecting additional information
Once the risk assessment is complete, the next step is to collect additional information about the customer or transaction. This may involve gathering more detailed financial information, verifying the source of funds, and conducting enhanced background checks.
3. Analyzing the information
After collecting the additional information, the digital identity company must analyze it to identify any potential risks associated with the customer or transaction. This may involve reviewing the customer’s business operations and beneficial ownership structures.
4. Enhanced Transaction Monitoring
The EDD process should also include enhanced transaction monitoring to detect and investigate any suspicious activity. This includes reviewing the customer’s or client’s transactions, including the amount, frequency, and type of transaction.
5. Ongoing Monitoring
Finally, the EDD process should include ongoing monitoring of the customer or client to identify any changes in risk and ensure compliance with regulatory requirements.
Why is EDD important?
EDD is critical in mitigating the risks associated with high-risk clients. Failure to identify and manage these risks can lead to serious consequences for a company, including reputational damage, financial losses, and regulatory fines.
In the context of KYC and AML compliance, EDD is essential to prevent financial crimes such as money laundering, terrorist financing, and corruption. These crimes can have severe consequences, including damage to the global financial system, and can impact national security.
uqudo’s Enhanced Due Diligence (EDD)
Banks and other financial institutions have been looking into automated CDD and AML solutions as a result of businesses’ growing awareness of the importance of properly performed due diligence procedures in today’s digital environment. Using technology innovations is more practical given the volume of data that must be analyzed during due diligence. uqudo’s customised EDD and KYC procedure can help identify and mitigate the chances of your company’s association with financial fraudsters.