The practice of conducting thorough research has been an indispensable component of risk assessment for a very long time. In the most recent past few years, correct data collection and screening procedures have received an even greater amount of attention and stress. As a legislative duty that is a component of a more comprehensive Know Your Customer (KYC) requirement, Enhanced Due Diligence (EDD) has recently risen to the forefront as a result of the implementation of a risk-based strategy into the compliance programs of various institutions. You must know about the enhanced due diligence meaning and its benefits.
1. Verifying & Screening
You have a responsibility to determine the identity of your potential customer as well as the geographic location of that person before beginning a working relationship with them. All of this needs to be validated, which will become extremely problematic in an environment where people are becoming more susceptible to cyber crime. Further identification checks including business verification will probably be necessary to discover problems at an earlier stage.
Effective enhanced due diligence also involves screening potential customers by name (CDD). The purpose of conducting a name screening would be to determine whether or not the potential client has been linked to any potentially hazardous endeavors or is on any blacklist.
Ensuring that constant monitoring is carried out as this process guarantees that business partnerships and transactions are uniform and that there is no anomalous activity, often known as “red flags,” once the connection has been created.
Lately, several financial institutions and other regulatory bodies have indicated it would be good to move toward standardized KYC criteria.
Check the status of any ongoing transactions.
Conduct an analysis of the transactional history of your customer, paying close attention to details such as the transaction processing times, as well as the kind and motivation behind their transactions. The existence of discrepancies between the anticipated value of the items and the quantity paid or received is typically indicative of fraudulent activity. It is essential to conduct these checks on a consistent basis over time to maintain compliance while preserving one’s independence.
3. Media reports
When it comes to finding the hidden dealings of a company or an individual client, information that has been published by reputable media houses is a crucial factor. When enhanced due diligence is being performed, any press items that pertain to high-risk consumers are meticulously examined to look for warning signs. As a consequence of this, the conduct of this form of research contributes to the development of a comprehensive consumer profile.
In the case that there are an excessive number of unfavorable reports, financial firms are made aware of the potential risk involved in conducting business only with consumers being reviewed.
4. On-site visit
You should go to the physical business location of your client to confirm that they are who they claim to be and to ensure the location at which they conduct business is consistent with the location that is shown on the paperwork that they have submitted. It is a cause for concern if those same addresses don’t match, or if the company you locate is different from what you anticipated according to the data your customer submitted to you, as both of these situations indicate a potential problem.
To get physical verification papers that can’t be accessed digitally, an on-site visit may also be required.
Teams responsible for compliance in businesses and financial institutions face a significant obstacle in the form of enhanced due diligence processes. The inspections ought to be conducted in a manner that is suitable for the risk-based strategy, make use of any and everything reasonable resources to gratify the regulatory standards, and supply the pertinent information necessary for making an informed and calculated decision.