Enhanced Due Diligence (EDD) is reserved for managing higher-risk clients and transactions. It involves a more rigorous investigation compared to Standard Due Diligence to ensure that firms have a full understanding of who their client is and the risks they present before working with them.
Here’s a list of key actions on how to conduct EDD effectively:
The first step in EDD is identifying clients and transactions that pose a higher risk to your firm. This can include politically exposed persons (PEPs), clients from high-risk jurisdictions, or transactions involving large sums of money.
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Gathering detailed information about the high-risk client or transaction is essential to identify and manage potential risks. This includes obtaining more documentation and conducting in-depth verification on the client.
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Perform extensive background checks to uncover any adverse information about the client. This involves checking multiple sources and databases.
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Understanding the origin of the client's funds and wealth is critical in EDD. This helps in identifying any suspicious or illicit sources.
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EDD is not a one-time process; when high-risk clients are identified, they require continuous and frequent monitoring to detect any changes in the client’s risk profile to identify suspicious activities.
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Due to the higher risks involved, it is important to involve senior management in the decision-making process for the additional sign-off. This ensures that all significant risks are properly evaluated and managed.
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Proper documentation is essential for demonstrating compliance with regulatory requirements and providing an audit trail when audits are conducted.
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Enhanced Due Diligence is a critical component of any robust AML compliance program. Identifying high-risk clients and transactions, help protect your firm against fraud whilst mitigating the risks associated when representing high-risk clients. Using technology solutions like Validient can help with risk management in a more effective manner and provide an overview of EDD activity.
Following these steps can help you to manage your risks so you can focus on providing great service.
To see how Validient can help your firm with AML compliance, client onboarding, and risk management, visit our website.
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