EDD (Enhanced Due Diligence)

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:

1. Customer Identification: Verifying a customer's identity through reliable documents and data checks.

2. Understanding Customer Activity: Gathering information about a customer's intended use of services, transaction patterns, and expected source of funds.

3. 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:

1. Verifying Source of Funds: EDD requires a thorough understanding of the origin of a customer's wealth and the legitimacy of their financial resources.

    

2. Beneficial Ownership Verification: Identifying the true owners of a company and any complex ownership structures that might be used to conceal illegal activity.

    

3. Sanctions List Screening: Checking customers and beneficial owners against sanctions lists to identify any potential matches.

    

4. 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

• Automated Watchlist Screening: SmileID's AML Check tools scan vast databases of watchlists and sanctions lists, identifying potential risks associated with your customers. This check undergoes ongoing monitoring so all customers can be screened even after onboarding. 

   

To learn more about how we can help your business navigate it’s due diligence program, speak to one of our experts here.