Whilst we’ve looked at what due diligence means in one of our previous blog posts, in this article we’re taking a closer look at the difference between Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD). On the whole, when discussing KYC and customer onboarding, due diligence refers to the process of vetting potential customers to determine whether or not they’re involved with any fraudulent or criminal activities (for example: money laundering and terrorism financing). It is a legal requirement of businesses in the financial industry (and some others), though, as we have discussed in previous articles, there may be differences in the due diligence methods and requirements in various jurisdictions.
At its core, the difference between CDD and EDD is merely one of thoroughness. CDD is a basic but essential element of KYC and is applied to all customers being onboarded in a regulated industry. With CDD, the business will obtain copies of the customer’s name, date of birth and address, before verifying them and performing checks to ensure they are who they claim to be - onboarding them if no issues are found. The process of EDD comes into effect when the checks carried out as part of CDD turn up something that alerts the business to the fact that the customer may be a ‘higher risk’ user.
Some noteworthy reasons for a customer being flagged as requiring EDD, rather than the standard CDD, would be the appearance of their details (such as name or address) on various lists (sanctions lists, politically exposed person lists etc), in adverse media, or if the people in question have a high net worth. Essentially, the people in question pose a higher risk of involvement in criminal activity - often through no fault of their own - whether that be because of their position or wealth leading to the threat of blackmail, previous association with money launderers, residence in a place with links to terrorism, or any other potential complication. If issues are raised as part of the CDD process, the customer’s application will be transitioned into the more-intensive EDD process.
Once a profile has been identified as requiring EDD, additional checks and measures have to be taken to determine whether the individual can be onboarded, requiring further information or identification documents from the customer so more detailed verification can take place. Whilst CDD can be automated, the EDD process is likely to require some human oversight to determine whether action is needed in specific circumstances, or to differentiate between edge cases that crop up. Naturally, this makes onboarding customers who have to go through EDD more labour intensive, but there are still ways that the process can be made simpler, smoother and more efficient.
Blockpass' KYC Connect solution is designed to facilitate CDD and EDD in the most simple and efficient way without sacrificing security, with the service providing anti-money laundering screening, PEP and Sanctions lists checks, adverse media screening and ongoing monitoring. With pre-verified users, customer due diligence is already completed and users can be onboarded instantly, whereas for those requiring enhanced due diligence, the design of the app and console makes it simple for merchants to request additional data, follow up with clients and check the results of the EDD process whilst keeping the user in control of their own data.
The Blockpass platform is fully automated and hosted in the cloud, with no integration or setup fee. Businesses can sign up to the KYC Connect console in a matter of minutes, test out the service, and start conducting identity documents verification, KYC and AML checks. Sign up for FREE at console.blockpass.org.
By Matthew Warner