What is the difference between CDD  and EDD?

Customer Due Diligence (CDD) is the process of gathering information about a customer to assess the risk of a business relationship. This includes identifying the customer and verifying their identity, as well as gathering information about their business activity.

Enhanced Due Diligence (EDD) is a more comprehensive process performed when a customer is deemed to present a higher risk. This may be due to factors such as the customer’s location, business activity or reputation. EDD involves a more in-depth investigation of a customer’s information, including background checks and identification of any possible suspicious activity.

In summary, CDD is a standard process used to assess a customer’s risk, while EDD is used when a customer is considered to present a higher risk and requires amore thorough investigation.

When is enhanced due diligence required?

An enhanced due diligence (EDD) is required when a customer poses a higher risk compared to other customers. This may be due to factors such as the customer’s geographic location, the nature of the customer’s business, the customer’s reputation, or other information that indicates a higher risk of money laundering, terrorist financing, or other financial crimes. The financial regulators and financial institutions may have specific policies and procedures for determining when an EDD is required.

How is enhanced due diligence to be performed?

In order to comply with enhanced due diligence (EDD), it is necessary to conduct further research on the client in question. Below are some steps to follow:

1. Identify the risk: It is important to determine which factors make the client a higher risk, such as geographic location, business activity or reputation.
2. Collect additional information: Additional information should be collected about the client, such as background information and any other relevant information that may help assess risk.
3. Verify the information: It is important to verify the information provided by the customer, such as their identity and information about their business activity.
4. Conduct a background check: A background check should be conducted on the customer to identify any possible suspicious activity or prior financial crimes.
5. Perform a risk assessment: Based on the information gathered, a risk assessment should be performed to determine the level of risk presented by the customer and whether further due diligence is required.
6. Continuous monitoring: It is essential to continuously monitor customer activity to identify any possible suspicious activity in the future.

It is relevant to note that specific EDD procedures may vary by financial institution and applicable regulations. It is advisable to follow the policies and procedures established by the financial institution and comply with applicable regulations to ensure EDD compliance.

Why are CDD and EDD necessary?

CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence) are necessary to prevent money laundering, terrorist financing and other financial crimes. These crimes can have a negative impact on the economy and society in general. Therefore, it is important that financial institutions and other entities conducting financial transactions conduct due diligence to identify and assess the risk of their customers.

The CDD is necessary to identify and verify the identity of customers, as well as to collect information about their business activity. This helps financial institutions determine whether a customer poses a risk of money laundering or other financial crimes.

EDD is required when a customer is considered to present a higher risk. This may be due to factors such as geographic location, business activity or reputation of the customer. EDD involves further investigation of customer information to identify any possible suspicious activity.

In summary, the CDD and EDD are necessary to prevent criminal activities in the financial sector and ensure that financial institutions comply with their legal and regulatory obligations.