Enhanced Due Diligence (EDD) is a heightened Know Your Customer (KYC) process for high-risk customers. KYC procedures aim to verify customer identities and assess potential associated risks. EDD goes beyond standard KYC checks to provide a more comprehensive understanding of customers and their activities.
Whereas CDD focuses on verifying a customer's basic identity and understanding their financial activity, EDD goes deeper into mitigating potential money laundering (ML) and terrorist financing (TF) risks. Businesses operating in sectors particularly vulnerable to ML/TF, or those dealing with high-net-worth individuals (HNWIs) or Politically Exposed Persons (PEPs), are more likely to require EDD for certain customers.
When is EDD Necessary?
Regulatory requirements and a business's inherent risk tolerance dictate when EDD becomes necessary. Here are some common scenarios:
High-Risk Customers: Customers in sectors like money services businesses, casinos, or virtual asset service providers (VASPs) are generally considered high-risk.
High-Net-Worth Individuals (HNWIs): Due to the volume of financial transactions associated with HNWIs, EDD may be required.
Politically Exposed Persons (PEPs): The potential for PEPs to misuse their influence necessitates a more in-depth verification process.
Large Transactions: Transactions exceeding a certain threshold may trigger EDD requirements.
Understanding CDD vs EDD
Customer Due Diligence (CDD)
The foundation of AML/CFT compliance involves verifying a customer's identity, understanding their financial activities, and assessing their inherent risk profile. This typically includes:
Customer Identification: Verifying a customer's identity through reliable documents and data checks.
Understanding Customer Activity: Gathering information about a customer's intended use of services, transaction patterns, and expected source of funds.
Risk Assessment: Evaluating the collected information to determine the customer's risk profile based on factors like location, transaction volume, and industry type.
Also read: Digital Due Diligence: The Future of CDD in Africa
Enhanced Due Diligence (EDD)
Building upon CDD, EDD is a more intensive customer verification process employed for high-risk scenarios. It typically involves additional checks, such as:
Verifying Source of Funds: EDD requires a thorough understanding of the origin of a customer's wealth and the legitimacy of their financial resources.
Beneficial Ownership Verification: Identifying the true owners of a company and any complex ownership structures that might be used to conceal illegal activity.
Sanctions List Screening: Checking customers and beneficial owners against sanctions lists to identify any potential matches.
Enhanced Risk Assessment: Utilizing the additional information gathered to create a more comprehensive customer risk profile.
Benefits of EDD
Mitigates Money Laundering and Terrorist Financing Risks: EDD helps businesses identify and prevent involvement in illicit financial activities.
Strengthens Regulatory Compliance: Robust KYC/EDD programs demonstrate adherence to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations.
Improves Risk Management: EDD provides a more accurate customer risk assessment, allowing businesses to make informed decisions.
EDD with Smile ID’s Technology
Enhanced Due Diligence (EDD) is critical for businesses in Africa navigating high-risk scenarios. However traditional EDD processes can be slow, resource-intensive, and prone to human error. SmileID's technology revolutionizes EDD in Africa, offering a faster, more secure, and data-driven approach.
Streamlined Verification
KYB in Seconds: SmileID's Business Verification and Document Verification solutions verify beneficial ownership and match them to ID documents instantly. Our extensive network, accessible through a single API, streamlines business verification across Africa.
Enhanced Risk Assessment & Continuous Monitoring
To learn more about how we can help your business navigate it’s due diligence program, speak to one of our experts here.
