Enhanced Due Diligence (EDD)

Enhanced Due Diligence (EDD) is the most robust form of Customer Due Diligence that is utilized when a person or legal entity is considered a high risk. It relies on the same background checks as Standard Due Diligence, however, the process is a lot more thorough. Namely, the customer will typically have to provide multiple forms of identification and added information. Furthermore, customers going through Enhanced Due Diligence will be monitored more closely, with more frequent periodic reviews and stricter transaction monitoring thresholds in accordance with the financial institution’s risk policy.

Learn more about Enhanced Due Diligence.

Synonyms

Customer Due Diligence (CDD)

Acronyms

EDD

Examples

A customer applies to open a new bank account. During onboarding, the bank performs a Politically Exposed Person (PEP) check and identifies the applicant as a PEP. As a result, the customer is classified as higher risk due to increased probability for bribery, money laundering, corruption and other financial crimes. The bank therefore applies Enhanced Due Diligence (EDD). This includes requesting additional identification to properly verify the customer, as the personal information of political figures is often publicly available and more susceptible to misuse. The bank also conducts expanded sanctions and adverse media screening to further assess potential risks before proceeding.

In the end, the bank decides to still open the account as no major threats were found. However, their account is monitored a lot more closely. Instead of once every year or two, their account is regularly reviewed two times a year, and in accordance with the bank’s risk tolerance, every transaction over $10,000 also triggers an account review (this is not a universal threshold).

FAQ

When is Enhanced Due Diligence necessary?

Enhanced Due Diligence is necessary when a customer is considered a high risk. A customer can be considered a high risk if they: come from a high-risk country, are a Politically Exposed Person, are under sanctions, have been involved in financial crime in the past, are closely associated with a high-risk person or business. A person can also be categorized as a high risk after the initial onboarding if they, for example, start exhibiting strange transaction patterns.

What is the purpose of EDD?

Enhanced Due Diligence (EDD) allows financial institutions to deal with risk in an effective way. Namely, by implementing very robust screening only when dealing with high-risk customers, financial institutions can minimize risk without wasting resources for every customer.

What is the difference between EDD and Customer Due Diligence?

Enhanced Due Diligence (EDD) is the most robust form of Customer Due Diligence (CDD) that is used for high-risk customers. Customer Due Diligence has three forms: Simplified, Standard, and Enhanced Due Diligence depending on the customer’s risk profile.