When starting a firm, corporations typically put more emphasis on the profit than on their customers. Companies are now taking client identity verification extremely seriously as circumstances change and internet scams soar. In order to comply with KYC rules, the process requires accurate client identification verification. Failure to comply exposes the business to significant fraud risks, financial claims, and fines.
Enhanced Due Diligence or EDD refers to a sophisticated KYC due diligence procedure which includes additional risk analysis. It is recommended for high-risk clients and huge transactions. The banking industry is more in danger from high-risk consumers and questionable transactions, which CDD systems could miss. As a result, businesses employ Enhanced Due Diligence methods to increase identity assurance by using the customer’s identification to assess and categorize their risk level. To know more about EDD processes, click here.
5 important factors regarding Enhanced Due Diligence
Here are the five key factors that you need to know about Enhanced Due Diligence.
Observing the current transactions
It is essential to carefully review transaction information and comprehends its purpose along with its nature in order to fully understand consumers. When executing Enhanced Due Diligence, financial institutions bear this in mind. To better understand client behaviour, they also keep an eye on other important factors like processing time and interested parties. Even the motivation behind scheduled transactions is examined to make sure it falls within the expected range.
On-the-spot verification is crucial for banks and other financial institutions. There are several instances of so-called business owners registering a single room in a certain building and using it as their office to apply for loans. The consumers circumvent the law after the money has been credited to their account.
The Enhanced Due Diligence workers mostly conduct this by comparing the physical address to the address listed in the submitted documentation. The risk-based threshold is considered to have been crossed in cases of discrepancy.
Analyzing the news and information related to the company or business
Information released by reputable media outlets is essential for getting to know about a company’s or a customer’s secrets. When conducting Enhanced Due Diligence, news reports pertaining to high-risk clients are carefully examined for warning signs. As a result, this sort of research aids in creating a thorough client profile.
Financial institutions are warned about the danger associated while doing business with the examined consumer if there are too many unfavourable reports.
A report is prepared after the investigation
A thorough report on the customer is written at the conclusion of the evaluation process ( to be used as a reference for the future). It is important to remember that these reports are created using a score-based system, and clients who have high scores are accepted and regarded as acceptable for commercial relations with the company.
To make it simple for regulators to obtain reports whenever they need them, all of the reports are kept on a secure server. The General Data Protection Regulation (GDPR) standards are followed when storing data, assuring the protection of private information.
Evaluating the UBO and sources
The non-financial and financial assets of clients are assessed to confirm the wealth source and its authenticity. The Enhanced Due Diligence staff will designate the consumer as ‘not suitable’ if there are discrepancies between the actual earnings and net worth.
What else? In order to determine the customer’s organization’s UBO (Ultimate Useful Ownership), subsidiaries and shareholders of companies are also analyzed.
The greatest aspect of Enhanced Due Diligence is that it has the ability to assist financial organizations avoid and handle volatile clients along with their transactions. Enhanced Due Diligence thoroughly and accurately confirms every transaction, paying attention to every last detail.
In addition to thorough identity checks, it also offers other significant advantages like increasing your organization or business’s credibility and dependability in the eyes of customers and other businesses. Enhancing due diligence may guarantee that all financial crimes are under control.