The full form of EDD in banking is Enhanced Due Diligence. EDD is a process used by financial institutions to assess and monitor higher-risk customers or transactions that could involve money laundering or terrorism financing. It is an advanced level of due diligence conducted beyond the standard procedures to ensure compliance with regulatory requirements and mitigate the risk of financial crimes.
Purpose of EDD
The main purpose of EDD is to identify and manage risks that are associated with high-risk customers or transactions. While regular due diligence (CDD) is sufficient for most customers, EDD is required when the customer poses a higher risk, such as politically exposed persons (PEPs), customers from high-risk countries, or those involved in complex financial transactions.
Key Features of EDD
- Increased Scrutiny: EDD involves a deeper level of investigation into a customer’s financial activities, sources of funds, and business relationships.
- Risk Identification: It helps banks identify any potential risks related to money laundering, fraud, or other illegal financial activities.
- Enhanced Monitoring: Customers who are subject to EDD undergo more rigorous ongoing monitoring to ensure that their transactions are consistent with their known business profile.
- Regulatory Compliance: Financial institutions use EDD to comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.
When is EDD Required?
EDD is required when the bank has identified certain red flags in the customer’s profile, such as:
- Involvement of a politically exposed person (PEP)
- Complex or high-value transactions with unclear sources
- Business relationships with high-risk countries or entities