EDD in Banking: A Comprehensive Approach to Avoid Financial Fraud in Banks
As the world becomes more digital, organizations must focus not just on the money they generate but also on the clients they connect with. It follows that verifying stakeholders is also essential. Clients are classified into many groups based on the danger they can present to any company. The regulatory authorities have mandated customer due diligence for banks as a requirement in order to ensure that the clients are legitimate and do not constitute a risk. Some clients, however, appear on worldwide wanted lists, and CDD is insufficient to cope with these kinds of risky profiles. Here is where EDD in banking can help.
The KYC risk rating approach uses EDD. It is an e-KYC solution that authorities use to carry out a thorough verification of customers. For those clients who have been identified as having high-risk profiles. It assists banks and financial institutions in monitoring enormous numbers of transactions and analyzing the risk connected with them.
Enhanced Due Diligence vs. Customer Due Diligence
The primary distinction is that client due diligence is a less stringent authentication procedure that simply requires identification papers and addresses to identify a customer. EDD, in contrast, is a more strict and risk-sensitive technique that does a thorough verification of an individual. This person has been classified as a high-risk client by the KYC risk assessment system.
EDD in Banking Requirements
For the purposes of conducting EDD compliance on high-risk profiles, the customer is asked to physically visit the office with the given information.
- Background Information
- Funds Sources
- Adverse Media Screening
- Structure of their income
When is Enhanced Due Diligence AML Necessary?
EDD becomes mandatory whenever regulators discover a customer or firm engaged in money laundering or terrorism funding. An EDD, for example, becomes extremely important when a person on the PEPs list seeks to begin commercial activity with a company. Because they are in positions of authority, these people are more likely to engage in illicit acts such as financial fraud.
Furthermore, complicated organizations, high-risk nations, and clients that pass a threshold while doing transactions must properly validate by executing EDD. Organizations employ AML solutions to validate the source of money, which is a crucial element of the EDD process. Because of negative media attention, risk-relevant facts are often difficult to understand.
How to Conduct EDD
EDD compliance is a process that continuously observes client behavior. The following are the steps that make up the EDD process:
- Evaluation of Risk
The first step in EDD is to assess the amount of risk associated with a certain customer. When a consumer is recognized as high-risk by a series of background checks and AML tracking, they are divided into groups for full identification verification.
- Create an EDD Checklist
The procedure also includes developing an appropriate checklist for high-risk activities and clients who are classified as high-risk. The EDD compliance checklist includes all of the necessary information needed to resolve customers’ concerns. The list might be compiled using third-party statistics and technologies.
- Examining the Important Data
A vital stage in the EDD approach is determining who the final beneficial owners are and where the money is coming from. It confirms that the origin of the client’s funds is financially legitimate. If there is any contradiction in the assets, regulatory bodies should address and resolve it immediately.
- Continuous Monitoring of Transactions
KYC AML regulations are used to continuously monitor a client’s transaction record. Regulators should properly analyze data such as transaction times, types of transactions, and people.
- Adverse Media Screening
Checking for negative media coverage of a customer is also part of the EDD procedure. If they are ever exposed to negative media, it signifies the customer is a serious threat to corporate operations.
Conclusion
With the advent of technology, financial crimes are also growing. Criminals are becoming more advanced and are developing cutting-edge methods to commit scams. All industries are vulnerable to financial fraudsters, but banks are the most in danger. So, to stop these crimes in the banking and finance sectors, robust KYC CDD AML regulations are urgently necessary. Enhanced due diligence is one of the regulations that companies employ to protect financial institutions.
As the scope of EDD in banking grows, so does the technology that supports it. As a result, there are different solutions for safeguarding and expanding a banking or any firm. With the increase in financial crimes, banks are in serious need of a method to keep all fraudsters and hackers at bay. As a consequence, EDD and KYC compliance shows that the banking or other business cares about its customers and that the particular client is real.
