In this continuously growing world, the focus of businesses should not be only on their productivity, but also on the kinds of clients they are administering with, which clears a view that identification of offend-users is an important task. All authoritative businesses categorize their clients differently depending on the high risks amalgamated with them.
To be sure that all customers are legal and authoritative, as well as not bringing any high-alert challenges for initiatives, Customer Due Diligence (CDD) is made significant by authoritative businesses. However, this was not at the point to support the industries efficiently in dealing with and detecting high-alert clients who are blacklisted, or other nationals of the states, for this, Enhanced Due Diligence (EDD) is a comprehensive mechanism that supports the financial department’s businesses in recognizing all blacklisted entities and risky transactions.
What Is More Supportive, EDD or Customer Due Diligence For Banks?
After the practice of both EDD and CDD, the outcome was that it is enhanced due diligence (EDD), which is obvious and efficient in its working in dealing with high-risk transactions and verifying the clients who are associated with risks in a company. It is a mechanism of Know your customer (KYC) authentication that detects the challenging end-users who are not fine for the authorities and aimed to damage an organization. Hence, EDD is the only process that accommodates proficient inspection as compared with Customer due diligence (CDD).
FATF Recommendations For High-Alert Transactions
To deal with high-alert transactions or risky clients who enter a system with their illicit objectives, Financial Actions Task Force (FATF) suggests some risk-based strategies. All companies, particularly financial institutions, are instructed to establish a risk-based approach (RBA) for their business to evaluate the challenges regarding money laundering and terror financing actions, that must practice anti-money laundering and CFT standards to efficiently eliminate the uncertainties of transactions. Moreover, according to the recommendations of FATF, it is also obligatory to keep a record of the client’s transactions history, regular supervision should be performed, powers and resources of the authoritative entities should be accessed and legal actions and penalties should be taken for the countries who are not accompanying the FATF recommendations.
A Walkthrough Of Due Diligence Financial Services
For the verification of risky clients and their challenging transactions, which are severe for the productivity and reputation of financial organizations, there is a pathway to be followed with the support of Enhanced due diligence (EDD) for assassination that is such as;
1. Risk-Based Approach
The very first step to follow in this process of EDD is categorizing and classification of the customers by applying the KYC compliance, which accesses the credentials of the clients in-depth and helps EDD to determine the legal and illegal individuals along with their transactions histories to distinguish the precarious ones, who are harm for the system.
2. KYC Due Diligence Checklist
In this step, a KYC checklist of high-alert customers is generated, which is also known as the EDD checklist. It provides all significant credentials related to the customer and supports the financial institutions in further proceedings.
3. Examining The Source Of Funds And Resources
In the third step of EDD banking, the source of income and resources are examined, which is actually a crucial part of verification, because observing the earning sources of black money is a big task, as well they are not permitted to enter the business space. For the betterment of the business, an efficient investigation is performed in which all financial and non-financial assets are authenticated. In case of any discrepancies, the process is stopped immediately and monitored specifically on time for further assessment.
4. Monitoring of Transactions
The process ends with a deep analysis of the transaction history of the risky customer, their time of transactions, and the receivers of payment are also observed. Moreover, in EDD banking the threshold of all individual transactions is also considered.
Significant Factors Of Conducting EDD
There are multiple prestigious factors that are considered in the process of EDD banking, given below;
- Nature of businesses
- Patterns of transactions
- Agreements of payments and partnerships
- Observing the end-users concerns
- AML policies
- The reputation of businesses through local media
In A Nutshell
Concluding the whole conversation, It is assessed that EDD banking is an efficient mechanism that is performed for the betterment of the businesses, in which all high-alert transactions performed by harmful customers are investigated, thereby preventing the business spaces from money laundering or any form of risky transactions. Moreover, it supports the businesses to maintain their reputation and productivity effectively.