Enhanced Due Diligence: Complete Checklist for 2024

When you start dealing in business, companies usually focus on the profit instead of who they’re dealing with. But as times change and online frauds increase staggeringly, companies are taking customer identity verification and due diligence very seriously.

Enhanced due diligence checklist

But what exactly is Enhanced Due Diligence (EDD)? The procedure involves proper customer identity verification to meet Know Your Customer (KYC) guidelines. Failing to do so exposes the company to serious fraud risks, financial lawsuits, and hefty fines.

In this article, we discuss compliance challenges and how effective EDD practice helps manage high-risk customers.

What is Enhanced Due Diligence?

Enhanced Due Diligence, or EDD, plays a significant role in properly managing high-risk customers. The EU’s 4th Money Laundering Directive and the inter-governmental Financial Action Task Force heavily rely on EDD to advise companies.

Such directives involve the financial institutions conducting extra Know Your Customer checks apart from the routine Customer Due Diligence procedure. This ensures the client’s funds are not being wrongfully used for money laundering or other fraudulent activities.

Customers rely on financial institutions to safeguard their money and personal information. When institutions follow KYC and EDD procedures, they show how much they value their customers. EDD allows companies to thoroughly know their customers and identify if they are on any prohibited list that might cost dearly. Such activities involve all banking frauds, money laundering, etc.

What are Enhanced Due Diligence Factors?

Let’s take a look at some factors that directly affect Enhanced Due Diligence. Since EDD is a continuous process, several factors affect its application, including geographical, customer, and other reasons.

Geographical factors

Geographical factors such as the diplomatic status of a country play a crucial role in EDD. The citizens of politically sanctioned countries are often listed as high-risk when they intend to make a transaction. Similarly, a person belonging to a village, town, city, or state with strong terrorist operations and influence will automatically fall under the high-risk category.

Customer factors

The risk regulations of any financial institution must fall under the BSL AML Laws. These regulations clearly state customer risk factors, like a situation where most customers are not from the same country as the institution. Other situations might include the client or their relatives having active political exposure.

Other reasons

The private banking sector rides high on revenue with a high confidentiality level. The following reasons open the window for different risks like terrorist funding, money laundering, etc.

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What is the Enhanced Due Diligence Checklist?

Currently, there is no official guideline about how to carry out Enhanced Due Diligence. The regulations only state that if a company carries out further verifications, they should match the risk level that a customer poses.

Let’s take a look at some general steps every EDD checklist must include:

1. Understand the risk level of your customer.

2. Widening your search parameters to gain additional information.

3. Regular background checks to update risk assessments.

4. Checking a customer’s funds source to eliminate any risk factors.

5. Data organization to comply with AML guidelines and be easily accessible during auditing.

Tips for Successful Enhanced Due Diligence

If you want your Enhanced Due Diligence process to be successful, your team must be organized and strictly detailed. You need to keep an eye on the set priorities and coordinate accordingly.

Use real-time monitoring

Keep an eye on all the transactions and deploy measures in case you find any suspicious transactions. This is one area where the latest artificial intelligence and machine learning prove helpful.

iDenfy offers AI-based ID verification technology that helps companies during KYC and customer onboarding. Since there are hundreds of customers conducting thousands of transactions every minute, AI proves helpful in monitoring each activity for risk assessment.

Practice information-sharing

Since each client transaction in a company happens under their guidelines, your team must be completely aware of various risks and assessment procedures. The information will arm your team to catch any violations and further improve the Enhanced Due Diligence process.

Make compliance a priority

As a financial institution, compliance is one of the building blocks of an organization. Thus, ensuring complete compliance with guidelines and regulations will, in turn, make sure risk verification and elimination within the company.

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How to Conduct Enhanced Due Diligence Using Artificial Intelligence?

Even though companies need EDD when dealing with high-risk customers, the probability of encountering such a customer is increasing every day.

Hence, there is an urgent requirement to update the verification process and include artificial intelligence during customer onboarding and verification.

  1. Like Customer Due Diligence, to conduct EDD procedures successfully, a company needs a combination of expertise and technology. Financial organizations need to invest in the latest tech gear that will arm them against cybercrime and protect their customers.
  2. At iDenfy, we are developing sophisticated ID verification tools to carry out CDD and EDD properly. These tools can accurately screen and pinpoint any discrepancy in a customer’s identity.

We stand against fraudulent attacks and safeguard sensitive information stored in company servers. Contact us today if you wish to know more, and don’t forget to book a free demo.

This blog post was updated on the 15th of December, 2023, to reflect the latest insights.
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