Enhanced Due Diligence

enhanced due diligence in banking sector analysis

enhanced due diligence (EDD) is a type of risk based due diligence that allows businesses to manage high-risk transactions and customers while remaining in compliance with regulations. When implemented correctly it shields companies from severe reputational and legal penalties while ensuring that their Anti-Money Laundering (AML) and Customer Due Diligence (CDD) processes are effective in combating financial crime.

In most cases, EDD is required when the transaction or customer is classified as high-risk due to complex ownership structures, political exposure, or involvement in sectors that are prone to money laundering or financial criminality. Additionally an important change in customer behavior such as an increase in transaction volume or the nature of transactions that are not well-known could warrant an EDD. In addition, any transaction that involves a country or a region with higher risks of money laundering or financing for terrorism will require an EDD.

EDD focuses on identifying beneficial owners, revealing hidden risk factors such as the real beneficiaries of a transaction or account. It also identifies suspicious and unusual patterns of behavior in transactions and verifies the information through independent interviews and checks, as well as site visits, and third-party confirmation. Additionally, a examination of the reputation of local markets by examining media sources as well as existing AML policies round out the risk assessment.

EDD is not only a requirement for regulatory compliance; it’s a crucial element of protecting the integrity of our global financial system. Implementing EDD procedures that are efficient is not just a matter for compliance. It’s an investment into the safety and security of the global financial system.