Enhanced Due Diligence
Key Takeaways: Enhanced Due Diligence
- EDD (Enhanced Due Diligence) involves high-risk customer due diligence, which means applying extra checks and effective controls for high-risk customers to prevent financial crime.
- Regulators require regulated entities to adopt a risk-based approach for conducting EDD for high-risk customers, including ongoing monitoring and record-keeping.
- Citadel365 helps entities automate EDD procedures with a centralised platform facilitating customer onboarding, screening, risk assessment, and managing cases.
What Is Enhanced Due Diligence in AML/CFT
Enhanced Due Diligence (EDD) is a process that involves performing more critical KYC checks on customers who pose a high risk to regulated entities. Besides standard customer due diligence (CDD), which only involves identifying, verifying customers and assessing their risk, EDD is an advanced CDD that involves in-depth investigations.
Regulated entities must apply EDD to high-risk customers, checking the source of funds, verifying beneficial ownership, obtaining top management approval, and conducting intensive transaction monitoring to combat financial crime.
When Enhanced Due Diligence Is Required
Regulated entities must perform enhanced due diligence (EDD) in the following situations:
- When dealing with high-risk customers such as Politically Exposed Persons (PEPs), complex corporate structures, or non-resident customers.
- Entities with clients from high-risk countries or trade activities with high-risk/sanctioned jurisdictions.
- Customers are unable to provide justification for the source of funds, or entities detect unusual transaction patterns.
- The above scenarios require regulated entities to perform enhanced checks, demanding more documentation, justifications and approval from senior management.
Key Components of Enhanced Due Diligence
Enhanced due diligence involves the following key components:
- Beyond basic checks, EDD involved detailed verification of customer identity and beneficial ownership.
- Entities analyse customers’ source of funds and source of wealth to verify that money hasn’t been derived from money laundering or terrorist financing activities.
- Screening customers against sanctions, adverse media, and PEP databases.
- EDD also includes approval from senior management and a clear, documented justification for the assigned risk rating.
- It is also required to insist that the customer make the first payment towards the transaction from a bank account held in their own name.
Regulatory Expectations for Enhanced Due Diligence
Regulators expect DNFBPs and financial institutions to apply risk-based due diligence, including stricter scrutiny for high-risk customers, jurisdictions and transactions.
Further, regulated entities must document EDD records and decision-making and maintain audit trails, ensuring accountability and regulatory compliance. Moreover, the regulatory authorities require entities to emphasise identifying and mitigating high risk rather than just the completion of EDD procedures.
Operationalising Enhanced Due Diligence with Citadel365
Citadel365 supports regulated entities with structured EDD procedures that align with risk-based requirements. Further, the platform provides integration software solutions, enabling automated customer onboarding, name screening, and risk assessment for high-risk customers.
Citadel365 facilitates the escalation of customer data or unusual transactions for EDD and senior management approvals. Also, the case management software allows case creation for EDD reviews, improving efficiency. The audit trails help generate evidence for documenting STR/SAR and easing regulatory inspections.
Strengthening High-Risk Customer Oversight
High-risk customers subject to EDD also require continuous monitoring to identify changes in their risk profiles, detect anomalies in transactions, recognise adverse media or sanctions, and avoid regulatory penalties for non-compliance.
Further, entities must conduct periodic reviews to identify trigger events and assess high-risk customers’ ongoing risk. Moreover, regulated entities must ensure strong EDD oversight to uncover hidden risks and reduce financial crime exposure and regulatory breaches.
Enhanced Due Diligence FAQs for AML Professionals
Enhanced due diligence is a compliance process that requires financial institutions and DNFBPs to perform in-depth investigations, apply stricter controls, and closely monitor high-risk customers and transactions. EDD is required for PEP customers, unusual transaction behaviour, sanctions exposure, or involvement with high-risk jurisdictions.
Enhanced due diligence involves intensive customer verification to mitigate money laundering and terrorist financing risks associated with high-risk clients, while standard customer due diligence (CDD) is a mandatory requirement for customer identification and verification.
Information such as source of funds & source of wealth is required for enhanced KYC with ultimate beneficial ownership identification, and adverse media & PEP screening.
Regulators assess EDD effectiveness by analysing whether entities adopt a risk-based approach to identify and verify customers, and document EDD decisions, providing clear, reasonable justification for risk classification.
Yes, technology such as Citadel365 helps improve enhanced due diligence processes by providing a centralised platform for conducting EDD, which reduces manual checks, speeds up risk detection, and ensures compliance with regulatory EDD obligations.