In today’s business and regulatory climate, a business should not only be concerned with making profits — it should also attempt to know who it has business dealings with (banks especially).
What is Enhanced Due Diligence? Enhanced due diligence (EDD) is a KYC process that provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by customer due diligence. EDD goes beyond CDD and looks to establish a higher level of identity assurance by obtaining the customer’s identity and address, and evaluating the risk category of the customer. Enhanced due diligence is specifically designed for dealing with high-risk or high-net worth customers and large transactions; banks are a good example. Because these customers and transactions pose greater risks to the financial sector, they are heavily regulated and monitored in order to ensure that everything is on the up and up. There are several characteristics that distinguish EDD from regular KYC policies: 1. Rigorous and Robust: EDD policies must be “rigorous and robust” which requires significantly more evidence and detailed information. 2. Detailed Documentation: The entire EDD process must be documented in detail, and regulators should be able to have immediate access to enhanced due diligence reports through modern software. This demands more scrutiny when it comes to how data is captured and validating the reliability of those information sources. 3. Special Attention for PEPs: Special attention must be paid to politically exposed persons (PEPs) — they’re viewed as being a higher risk because they are in positions that can be potentially abused for money laundering. EDD: Beyond Regulatory Scrutiny So, what’s in it for the bank or financial institution beyond avoiding painful fines and unwanted regulatory scrutiny? 1. Better Serve Your Customers The EDD and identity verification processes yield a bunch of useful information about your customers, including employment status, age and purchasing power which can be repurposed to offer bespoke solutions to better serve their needs. 2. Deter Financial Crime The idea is that knowing your customers — verifying identities, making sure they’re real, confirming they’re not on any prohibited lists and assessing their risk factors — can keep money laundering, terrorism financing and more run-of-the-mill fraud schemes at bay. The ounce of prevention lets you focus more on business growth because more business is carried out within a positive legal climate. 3. Build Trust Sadly, trust is evaporating quickly. As cybercrime headlines continue to break, banks need to focus not only on halting the flow of money laundering and corruption, but also on being seen as scrupulous custodians of their customers’ data and cash. Adopting Know your business and enhanced due diligence processes also telegraphs to your customers, and prospective customers, that your focus is on lawful business. Thanks to emerging identity verification and from Globalradar, banking customers can now identify themselves from anywhere in the world; this way, banks can rely on quality know your business software. But, if banks are to be sure the process of remote verification is failsafe so that funds — and sensitive data — are protected, they need to be a step ahead of every technological development and every hack.
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April 2021
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