Amid the evolving regulatory climate, financial institutions should not primarily focus on generating profits or excelling in the success race. They should identify who they are dealing with as per Enhanced Due Diligence (EDD) requirements in the legal Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines. In case any bank fails, what they will gain is exposure to legal processing, hefty fines, and strict lawsuits.
Since 2000 to date, around $38.47 billion has been levied on 57 banks in a total of 17 countries, where $21.47 billion in material fines were for AML non-compliance. Hence, this makes KYC verification a necessary component for financial institutions.
This article covers the importance of enhanced due diligence and how KYC solution providers help banks stay compliant.
EDD in Banking – A Crucial Component of the KYC Process
KYC has become a crucial step in compliance programs due to a surge in identity theft and financial crimes. Know your customer is carried out when a person opts for account creation. It helps verify online users and deploy Customer Due Diligence (CDD) to validate their background, sources of funds, and other financial details. It further involves vetting the creditworthiness of customers and ensuring they are not a part of any blacklist or sanctions.
-
Introduction to Enhanced Due Diligence (EDD)
Due to the evolving regulatory landscape, KYC compliance goes beyond simple customer identity verification. Whilst banks focus on identifying basic ID details, they are leaving levels of risk associated with users. They further overlook enhnced due diligence that provides insights into legal status and also cross-checks if or not the customer is on any government watchlists.
EDD goes beyond the capabilities of CDD and ensures higher levels of security by ensuring accurate identity verification. It highlights risks associated with customers as well as businesses that the latter is unable to detect. Enhanced due diligence also classifies users into different categories depending on their nature and severity of risk.
What is Enhanced Due Diligence and How is it Different from General KYC
To deal with high-profile and relatively acute risk-possessed customers, banks put EDD into practice. As they pose an additional threat of money laundering, terrorist funding, and other illicit gains, large transactions are also subject to these checks. This makes EDD different from regular KYC online verification.
There are several points of action that further distinguish enhanced due diligence from general KYC checks:
1. All-Inclusive Documentation
The EDD process can be comprehensively documented in detail to make it easily accessible to regulatory authorities. The enhanced due diligence involves additional data collection for improved and thorough risk assessment which helps deter fraud more effectively.
2. Robust and Rigorous
Another distinguishable feature between EDD and KYC is that the former requires more evidence and customer identity details.
3. PEPs Screening
Using EDD provides insights into Politically Exposed Persons (PEPs) lists which helps cross-verify high-profile personnel and monetary giants. However, with regular KYC, banks might not be able to go this further during customer onboarding.
EDD is an Escape from Legal Penalties and Unwanted Regulatory Scrutiny
Given the utmost importance of EDD in compliance programs, enhanced due diligence solutions are enabling banks to revamp their existing systems. With automated AML/KYC solutions, they can better detect suspicious activities and fight crime accordingly. AI-powered EDD checks help banks gather additional information that KYC procedures overlook.
The use of automated EDD in banking further holds the following benefits for financial institutions:
Identify and Deter Financial Crimes
Businesses as well as customers hold equal threats of money laundering for banks. Therefore, it has become crucial to identify risks associated with every client. Enhanced due diligence checks enable banks to go an extra mile and access global financial records to cross-verify customers’ identities. EDD solutions further predict risks of crime prior to user onboarding and enable monetary institutions to restrict criminals in the first place.
Upholds Reputation and Improve Worth in the Business Sphere
When banks screen customers through enhanced due diligence checks they can prevent the flow of dirty money. Furthermore, with access to global financial records, there will be less loopholes in customer identification. This way, enhanced due diligence solutions upholds banks’ integrity and secures their representation in the business market.
Builds Trust Among Global Users
With EDD solutions, where banks ensure KYC compliance, they can also halt exposure of customers’ crucial information to data breaches. With improved security protocols, user-friendly interface, swift onboarding, and data protection, financial institutions can portray a lawful business image whilst building trust among global customers.
Bottomline
Thanks to emerging automated KYC online verification solutions, EDD has become easier, swift, and more efficient. They help banks cope with evolving enhanced due diligence requirements, prevent legal fines, and stay ahead of criminals. Furthermore, financial institutions can access global databases which leaves less room for fraudsters to exploit legitimate banking systems.