Enhanced Customer Due Diligence (ECDD)
Any financial institution or regulated business has to undergo the KYC process for customer on boarding. This is part of the global efforts to comply with Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) laws, as well as to protect the business from fraud and bad actors. During the KYC process, CDD is a key measure that scrutinises the risk exposure of a customer.
However, in some cases the regulatory compliance extends beyond the onboarding stage, when additional or enhanced checks are required.
What is Enhanced Customer Due Diligence (ECDD)?
Enhanced customer due diligence, or ECDD, are additional checks to minimise risk exposures, violations of regulatory compliance, and prevent financial crimes arising from money laundering or terrorist financing. EDD procedures are applicable to all entities, whether individuals or businesses, which are deemed ‘high risk’ or mandated under the law for enhanced diligence.
Why is ECDD required?
ECDD is required where the client and/or business transaction poses a high risk of financial crime. Enhance diligence of client is meant to lessen the risk of exposure.
When is ECDD required?
Risk-based approaches to client on boarding are based on the regulator guidelines, nature of transactions, business relationships and industry type.
However, broadly, ECCD is required in any one, or more, of the following cases:
– where transactions are large;
– where a business relationship is established with a high net worth entity;
– where KYC risk rating /compliance risk assessment indicates high risk exposure;
– where the national regulator lays down specific instances where ECDD is to be performed;
– in the case of certain businesses; like cryptocurrency, gambling and offshore banking;
– in the case of certain business relationships, for instance with shell banks;
– in the case of PEPs (Politically Exposed Persons), their close associates or family members;
– where a business relationship is established with an entity belonging to a sanctioned country.