What is Enhanced Due Diligence?

Enhanced Due Diligence means an advanced KYC due diligence process that provides further risk investigation. EDD is designed to handle high-risk customers and large transactions. Risky customers and transactions pose a greater risk to the financial sector and cannot be detected by CDD procedures. In this case, EDD procedures have been used that try to create a higher identity assurance by taking the customer identity and addressing and evaluating

the customer's risk category.  Moreover, When there is an increased opportunity from money laundering, terrorist financing through your service and product or customer may present a high-risk situation; therefore, these procedures are required to reduce the increased risk.

What are Enhanced Due Diligence Factors?

There are some legal situations where Enhanced Due Diligence procedures are required. For example;

  • Any business in a country on the High-Risk Third Countries list in Europe,
  • Politically Exposed Persons (PEPs) or close spouses or family members in a more comprehensive investigation process,
  • In sectors with a higher risk of money laundering, such as gambling,
  • Some relationships, such as shell banks,
  • Countries recognized for common levels of corruption determined by reliable sources,
  • Countries blacklisted to fund or support terrorist activities are also
  • Private and correspondent banking

EDD|KYC Compliance 

EDD compliance is implemented with Regtech solutions, such as KYC due diligence compliance solutions. These solutions provide many advantages to companies, such as identifying key risk issues and using correct information in a well-structured format. However, many software solutions are quite inadequate, difficult to use, and have a low customer conversion rate. To prevent this from happening, you should choose software that is all right for your company's needs.

    Enhance Due Diligence in Banking

    The banking industry is very dynamic. Regulations and technologies in this sector are changing very fastly. Big corporates need to comply with regulations, specifically on financial crime regulations. Specific customers may trigger enhanced due diligence analyses based on particular behaviors. High-risk corporates such as banks need to control the Enhanced Client Due Diligence program carefully. As a result of these controls, especially globally operating banks have taken measures against risks. These measures are preferred by banks to avoid penalties for money laundering or to avoid penalties for non-compliance with regulations,, and even to protect their reputation.

    What Are EDD Procedures?

    Use a Risk-based Approach

    It will help if you start by recognizing and separating high-risk customers. Evaluating the customer's risk level correctly is an important measure for this approach. All these factors should be reflected in your AML compliance policy.

    Find Additional Credentials

    Create a checklist for your AML BSL policies for high-risk customers. This advanced due diligence checklist provides all the necessary details about your customer.

    Analyze the Origin and Ultimate Useful Ownership (UBO) of Funds

    The logic in this step is to understand the origin and legitimacy of the customer's wealth. For effective analysis, you need to verify that the value of all of your customer's non-financial and financial assets is related to their real assets. Inconsistencies between earnings, wealth source, and net worth should be eliminated. Subsidiaries and shareholders of businesses should be checked in determining the Ultimate Useful Ownership (UBO) of an organization/company.

    Tracking Ongoing Transactions

    If a customer has a transaction history, it should be checked and access to transaction details such as its purpose and nature. Details such as processing times and interested parties should not be ignored. Make sure that these procedures are required for choice and at the expected threshold values.

    Adverse Media and Negative Control

    Analyze relevant press articles to create a full profile of your customer and reputation. Negative results are an indication that there is too much risk for the business. However, if the results are positive, the next step should be taken.

    Visit On-site

    On-site visits to physical addresses are an essential requirement for all legal entities, including banks and companies. Documents that cannot be digitally sourced can be physically verified. If the physical address does not match the official documents' address, a high risk is detected.

    Prepare Your Report For More Investigation Strategy

    To implement a risk-based monitoring strategy, you need to understand the basic parameters. You also need to set up a periodic timeline to monitor and review your data. 

    Develop an Ongoing Risk-Based Monitoring Strategy

    Continuous monitoring of High-Risk customers takes time. Therefore, it is best to use a risk-based monitoring strategy.

    Why is EDD Important? 

    While the scope and details of enhanced client due diligence procedures are expanding, the technologies that address them improve. There are solutions to address risk, protect or grow your business. As cybercrimes and financial crimes increase, financial institutions need to focus on stopping the flow of money laundering and corruption and being seen as rigorous custodians of their customers' data and cash. Complying with KYC and EDD processes proves that your focus on your customers and potential customers is legal. With EDD, you can recognize your customers, make sure they are real, confirm that they are not on prohibited lists, and assess risk factors, thus counteract money laundering, financing terrorism, and more fraud. That's why you not only get to know your customers and serve them better, but you also get the opportunity to focus more on growing your business.