What is enhanced due diligence on a customer? (2024)

What is enhanced due diligence on a customer?

Enhanced Due Diligence (EDD) is an advanced risk assessment process that involves gathering and analyzing information about high-risk customers or business relationships to identify and mitigate potential financial crimes, such as money laundering and terrorist financing.

What are the 4 customer due diligence requirements?

What are the 3 types of customer due diligence?

There are three main types of CDD measures that organisations may use: standard CDD, enhanced CDD, and ongoing CDD. Standard Customer or Client Due Diligence refers to the basic level of information organisations must collect and verify about their customers.

Who qualifies for enhanced due diligence?

Conducting enhanced due diligence

If the initial checks have been completed and high-risk factors are identified (eg the individual is a Politically Exposed Person – PEP, or the entity is a cash-intensive business), firms are required to complete EDD to fully investigate and document potential risk.

What is the difference between customer due diligence and enhanced due diligence?

The main difference between CDD and EDD is that CDD is applied to all customers, while EDD is reserved for high-risk customers who require further scrutiny. Regulated entities are required to know who they have a business relationship with.

What must customer due diligence include?

Basic customer due diligence involves collecting information about: the identity of a customer – from their company address to the names of their individual executives. the activities a customer is engaged in and markets in which they operate. the other entities with which a customer does business.

What is CDD checklist?

Customer due diligence (CDD) is a series of checks to help you verify your customers' identities and assess their risk profiles. CDD is a regulatory requirement for companies entering into business relationships with a customer and is a big part of anti-money laundering (AML) and know your customer (KYC) directives.

What is a normal customer due diligence?

CDD refers to the standard process of gathering customer information, verifying identities and assessing risks. EDD is a more comprehensive and in-depth form of due diligence applied to customers with a higher risk profile. EDD involves additional measures, such as conducting more extensive background checks, verifying ...

What is standard customer due diligence?

CDD consists of performing background checks, and screening potential and existing customers to ensure they're not involved in illegal activity. At a minimum, CDD checks include verifying a customer's name, address, date of birth and photo ID and screening them to ensure they're not on prohibited lists.

What are some examples of due diligence?

There are many possible examples of due diligence. Some common examples include investigating the financials of a company before making an investment, researching a person's background before hiring them, or reviewing environmental impact reports before committing to a construction project.

What is an example of enhanced due diligence?

The Definition of Enhanced Due Diligence

EDD measures consist of different procedures, such as: Collecting customer information (for example, their name, date of birth, address). Identifying the customer's beneficial owner. Defining the purpose and intended nature of the business relationship, and more.

What is enhanced due diligence in simple words?

Enhanced Due Diligence (EDD) is a set of measures applied in situations that indicate a higher risk of money laundering and terrorist financing. EDD measures include, among other procedures: Obtaining specific information about the customer (e.g., name, date of birth);

When must enhanced customer due diligence be applied?

Enhanced due diligence may be required for persons or situations that present a greater risk, including: A business relationship conducted in unusual circ*mstances – e.g., unexplained geographic distance between the firm and customer. Non-resident customers, or those subject to economic sanctions.

What is simplified due diligence and enhanced due diligence?

Simplified Customer Due Diligence is a more relaxed due diligence procedure used for low-risk customers. Regular Customer Due Diligence is the standard procedures used for low-risk customers. Enhanced Customer Due Diligence refers to procedures that have been strengthened for high-risk customers.

Which of the following transactions requires an enhanced due diligence to determine whether it is?

Answer: The transaction that requires enhanced due diligence to determine whether it is suspicious is "large value foreign exchange remittances in the account of a large reputed import-export company."

What are the two main types of due diligence?

How do you carry out CDD?

What are red flags in CDD?

AML red flags are warning signs, such as unusually large transactions, which indicate signs of money laundering activity. If a company detects one or more red flags in a customer's activity, it should pay closer attention. In many cases, companies have to submit suspicious activity reports to authorities.

What must enhanced CDD should include?

Enhanced CDD has two core requirements over and above standard CDD: You may need to use increased or more sophisticated measures to obtain and verify your customer's details, their beneficial ownership structure, and the details of representatives and other key persons.

What is the new customer due diligence rule?

The CDD Rule requires these covered financial institutions to identify and verify the identity of the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.

What is reasonable due diligence?

It is the diligence that is expected from someone who seeks to satisfy a legal requirement or discharge an obligation. Example: If you are a student and have an assignment due, reasonable diligence would mean that you start working on it well before the deadline, put in the necessary effort, and submit it on time.

What is a good due diligence?

Due diligence is a process used to:

Test and understand the organisation to mitigate any risk. Check the organisation's business plan to check robustness. Begin the collaborative process between you and an investor to help you understand how to better run your organisation.

How do you fill customer due diligence?

What is the primary purpose behind customer due diligence?

These processes assist the bank in determining when transactions are potentially suspicious. Effective CDD policies, procedures, and processes provide the critical framework that enables the bank to comply with regulatory requirements including monitoring for and reporting of suspicious activity.

What are the 5 P's of due diligence?

A comprehensive manager due diligence process can be summarized via a simple heuristic we will refer to as the five Ps – performance, people, philosophy, process and portfolio.