Finance companies categorise customers into a wide range of groups based on risk. Ensure all consumers are legitimate and avoid putting barriers in the way of banks. In many financial businesses, EDD banking offers a straightforward process to examine customers and high-risk transactions.
It suggests that it’s essential to recognise each stakeholder. Finance companies categorise customers into a wide range of groups based on risk. Verify the legitimacy of every customer and avoid putting roadblocks in the way of enterprises. Enhance due diligence helps to examine customers and high-risk activities.
EDD in Banking – An Overview
Enhanced due diligence in banks is a crucial part of KYC compliance. Moreover, it includes information gathering to validate the customer identity and determine the accurate level of money laundering risk of each customer. During the EDD process, the customer needs to provide much more information than in the CDD process.
In general, when carrying out EDD in banking, the FATF suggest a risk-related method whereby “the amount of information gathered, and the level to which it is validated, should be expanded where the risk linked to a firm relationship is higher.”
Practical Steps for EDD Banking by FATF
- Obtaining extra ID details from a wider variety of independent sources
- Carrying out verifiable adverse media searches
- Commissioning an intelligence report to improve the understanding of whether a customer or beneficiary could have a criminal record
- Verifying fund sources or wealth involved in the corporate relations
- Seeking further details from the client about the nature of the business relationship
Difference between EDD and CDD
There are a number of differences between Customer Due Diligence and EDD. Firstly, EDD and CDD are different tiers of know your customer process. At the same time, CDD involves identifying the client with the help of provided data and cross-checking it against databases. On the contrary, EDD in banking goes much further.
Reserved for consumers who are considered to be high risk, for instance, PEPs who are subject to sanctions, enhanced due diligence adds additional steps to the process. On top of this, consumers need to provide a lot more details.
The exact enhanced due diligence differs depending on the jurisdiction the bank works in. However, FATF recommends that banks must
- Verify the customer’s source of income
- Spot suspicious activities through ongoing checks
- Monitor adverse media
- Keep precise data of the decision-making procedure
Besides Identity Verification, EDD Banking Involves
EDD provides many additional advantages in addition to fraud prevention and ID verification. Here are the advantages of utilising EDD banking for financial businesses.
- With regard to high-risk transaction records and activities as well as customer identification verification, having a lot of information will be helpful. Thanks to EDD compliance, the consumer will receive better services than previously.
- Financial institutions aim to document all legitimate transactions. Improved due diligence verification can help to accomplish goals more easily.
- Through additional levels of security, banks are now secure from scammers’ illegal actions like money laundering.
- All other finance businesses across numerous industries will have faith in EDD. Additionally, it may ensure the onboarding of honest customers and rigorously monitor transactions.
- EDD banking may focus more on the growth of businesses and more profits because it deters financial crimes.
When Should a Bank Apply CDD?
The customer due diligence process is a must for new customers a bank takes on, after which ongoing monitoring becomes necessary.
However, a bank must utilise EDD steps while doing business with the following organisations or personnel:
- Any industry in a country on the high-risk transaction third countries list
- PEPs or individuals within their close circle, including family members
- A blacklisted company with a history of terrorist activities
- A firm operating with a higher risk of money laundering. For instance, gambling
Conclusion
Enhanced Due Diligence (EDD) is the key to efficiently handling high-risk customers and transactions. Both major and small transaction information must be in the system to deliver a trustworthy verification. Additionally, it provides a lot more advantages than necessary identity verification checks. It boosts the credibility of numerous business entities and clientele in the marketplace. Prevention of every financial crime is possible through increased due diligence.
KYC compliance screening ensures that all high-risk clients are quickly identified in order to protect firm security. Additionally, they play a major role in handling high-risk transactions through EDD banking solutions.
