Do you really know your customers? Effectively, this is the heart of the enhanced due diligence process. When know your customer (KYC) and anti-money-laundering (AML) regulations were enacted, they set out to answer those questions. However, the non-uniformity of achieving those parameters has left a tremendous amount of variability that could be very costly if your bank or credit union gets it wrong. According to a report from Corporate Compliance Insights:
The report goes on to state the top three most-challenging issues for compliance teams:
Enter due diligence. KYC and AML are legal requirements set out by the Patriot Act “to strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism.” It set guidelines and punishments instead of a step-by-step playbook of what to look for in each account because of the inherent diversity of customer needs at each financial institution.
It turns out due diligence has different levels. Customer due diligence (CDD) is the standard level of investigation you need to perform under relatively normal circumstances, such as:
Normal levels of customer due diligence doesn’t mean relaxing your standards; ensure your compliance and security requirements are exceeded — while seamlessly integrating the CDD checks into your customer onboarding process.
This level of due diligence is a step higher than CDD. Enhanced due diligence (EDD) is designed to detect greater or more subtle risks that aren’t picked up by standard customer due diligence processes. EDD is much more sensitive to nuanced risks. Additionally, EDD is typically conducted after an initial CDD is completed. For example, a standard CDD may uncover that your customer is a PEP (politically exposed person) or perhaps a cash-heavy business. In which case, a much more detailed, more risk-sensitive analysis of your customer is required.
What does EDD entail? Let’s have a look at some mandatory requirements for safe and compliant EDD:
Enhanced due diligence conducted at or during the customer onboarding process helps minimize the outlier risks with taking on new customers. Exposing your customer to expanded checks, overtly or covertly, can reduce the overall risk exposure to your organization. It can also be an additive to your current customer onboarding process. In other words, it doesn’t have to be a net negative to conduct EDD at the onset of the customer relationship. For example, if CDD and EDD are conducted at the beginning of the relationship as a part of the new customer discovery process, you will naturally gain a better understanding of what your customer or prospect is looking for and how to keep your customer’s loyalty over the long term.
Enhanced due diligence can be cumbersome, exacting and daunting. The time, resources and expense can be problematic if your organization is currently tackling this growing compliance risk in-house. Consider working with a vetted, trusted partner to alleviate these pressures and allow you to concentrate on your core competencies while we take on EDD. We at Instnt, a sophisticated and tested solutions provider, will even indemnify you for up to $100 million in aggregate annual fraud losses while helping you onboard more great customers to grow revenue. Want to see how it works? Sign up for a free demo.