Companies in the rapidly expanding world shouldn’t just be concerned with productivity, and also with the type of customers they are serving, which makes it evident that identifying offenders is a crucial task. Based on the high risks associated with them, all reputable businesses categorize their clients accordingly. Customer Due Diligence (CDD) is given considerable importance by authoritative businesses to ensure that all clients are legitimate and legal as well as to ensure that they won’t pose any high-alert issues for initiatives. For this reason, EDD banking is a thorough process that aids financial firms in recognizing all blacklisted companies and risky money transfers. This is a great due diligence procedure at the moment to assist the industries effectively in interacting with and identifying high-alert customers who are blacklisted, or even other citizens of the states.
EDD and Customer Due Diligence for Banks – What is More Supportive?
Following the application of both EDD (Enhanced Due Diligence) as well as CDD, it was determined that enhanced due diligence is the best method for handling high-risk transactions and confirming the customers who are connected to problems in a business. It’s an e-KYC solution that finds difficult end users who aren’t okay with the directions and are trying to harm an enterprise. Therefore, contrary to client due diligence, EDD is the sole technique that allows for proficient monitoring.
High-Alert Transactions and FATF Recommendations
FATF recommends several risk-based ways to handle high-alert transactions or dangerous customers who approach a business with unlawful goals. All businesses, especially financial institutions, are required to implement a risk-based strategy for their operations in order to assess the risks associated with money laundering and steps that support terrorism. They also need to adhere to CFT and anti-money laundering requirements in order to effectively remove transactional uncertainties. In addition, the FATF’s recommendations state that keeping a record of a customer’s transaction history is required, and regular supervision must be carried out. Also, the authority entities’ resources must be accessed, and countries that disobey the FATF recommendations must face legal repercussions and penalties.
Due Diligence Financial Services at a Glance
In order to verify risky customers and their complex transactions, which are detrimental to the efficiency and image of financial institutions, Enhanced Due Diligence or EDD must be performed such as;
The first phase in the EDD procedure is to categorize and classify the customers using KYC compliance. It thoroughly examines the customers’ credentials and aids EDD in identifying both legal and unauthorized individuals. Moreover, it determines the risky individuals who are harmful to the system through their transaction histories.
KYC Due Diligence Checklist
In this stage, a high-alert client KYC checklist—also called an EDD checklist—is prepared. It contains all pertinent customer information and assists financial firms in subsequent steps.
Analyzing Sources of Funds and Resources
The third stage of EDD banking examines the income sources and assets, which is truly a vital component of validation because it is difficult to observe the earned sources of black money while they are not allowed to enter the commercial sector. A thorough investigation is carried out for the benefit of the firm, and all monetary and non-monetary assets are verified. If there are any errors, the procedure is instantly paused and carefully watched so that it can be evaluated further.
Monitoring of Transactions
The procedure is concluded with a thorough examination of the risky client’s transaction history, the timing of their transactions, as well as the recipients of their payments. Additionally, the threshold of each individual transaction is taken into account in EDD banking.
Important Factors of Running EDD
The following are a few important elements that are taken into account during the EDD banking procedure;
- nature of the businesses
- Agreements of partnerships as well as payments
- patterns of the transactions
- AML policies
- Checking the concerns of end-users
- image of the firms through local media
EDD banking is considered to be an effective KYC process that works for the benefit of financial companies. It monitors all the high-alert transactions that are carried out by unauthorized clients, thus preventing money laundering in the commercial sectors. Not only this, but EDD banking also helps companies maintain their efficiency and reputation in this digital world. It is a great bet to keep fraudsters away while making companies compliant with regulations.