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EDD adds another layer of protection when dealing with customers identified as high risk and refers to the process of gathering extra information and performing additional verification prior to conducting business with them.
How is EDD different to the traditional KYC process? The differences are many, EDD is a much more detailed process. It involves gathering additional information from the customer or third-party sources in order to clarify customer or beneficial owner information and identify the customer’s and/or beneficial owners’ source of wealth and funds. EDD also includes more detailed analysis of the customer’s identification (KYC) information by verifying or re-verifying it.
To satisfy regulators, companies are required to have an AML/CTF program, which states the actions that they will take when the risk of being involved in money laundering or terrorism financing is high. EDD is an essential component of any company's AML/CTF program required to support decision making on how to manage the risk of dealing with high risk or high-net-worth customers. Typically, these are customers who are acting suspiciously; or where it has been determined through risk-based systems and controls that the money laundering risk is high; or where the service being provided is for a customer who is (or has a beneficial owner who is) a foreign politically exposed person (PEP); or the person or a company performing a transaction has a presence or is incorporated in a prescribed foreign country.
The purpose of EDD is to provide an extra layer of security, when doing business with high risk customers, to determine the specific nature of the risk that would not be detected by the standard KYC process. EDD involves making extra checks on a customer's identification, collecting additional information and performing further verification, to help you determine if any suspicious matters need to be reported. It plays an important role in detecting, disrupting and preventing money laundering and terrorism financing. It also protects your business or organisation from being exploited for criminal activity.
