Understanding Kyc Cdd Edd Requirements

KYC, CDD, and EDD requirements can be overwhelming, especially for businesses and individuals who are new to the world of anti-money laundering (AML).

In simple terms, KYC stands for Know Your Customer, which involves verifying the identity of customers to ensure they are who they claim to be. This process typically includes collecting personal documents, such as passports and driver's licenses, and conducting background checks.

CDD, or Customer Due Diligence, goes a step further by assessing the customer's risk level based on their business activities, location, and other factors. This helps financial institutions identify potential money laundering risks and take appropriate measures to mitigate them.

EDD, or Enhanced Due Diligence, is a more in-depth assessment of high-risk customers, often involving additional documentation and ongoing monitoring. This process is designed to provide a more accurate understanding of the customer's risk profile and prevent potential financial crimes.

KYC, CDD, and EDD are essential components of anti-money laundering (AML) regulations.

KYC, or Know Your Customer, involves verifying a customer's identity and understanding their business and financial activities.

CDD, or Customer Due Diligence, is a more in-depth process that assesses a customer's risk level and monitors their transactions.

EDD, or Enhanced Due Diligence, is a more rigorous version of CDD, typically required for high-risk customers.

KYC, or Know Your Customer, is a process used by businesses to verify the identity of their clients. This is typically done to prevent identity theft and money laundering.

It's required by law in many countries, including the US, UK, and Australia. KYC checks can be done in person, online, or through a combination of both.

Businesses use KYC to gather information about their clients, such as their name, date of birth, and address. This information is then verified through government databases or other trusted sources.

KYC checks can take anywhere from a few minutes to several hours to complete, depending on the complexity of the case. In some cases, additional documentation may be required to verify a client's identity.

The goal of KYC is to ensure that businesses are only dealing with legitimate clients and not facilitating any illicit activities.

EDD is a critical component of the customer due diligence process, which involves screening customers against various lists and databases to identify potential risks. This includes screening against sanctions lists, such as the Office of Foreign Assets Control (OFAC) list.

In the context of EDD, screening is a crucial step to identify potential risks associated with a customer. This involves verifying the identity of the customer and screening against various lists and databases.

EDD also involves ongoing monitoring of customers to identify any changes in their risk profile. This can include monitoring for suspicious activity, such as unusual transactions or changes in business practices.

Applying KYC CDD EDD measures is necessary to avoid high-risk situations that lead to hefty fines.

In 2019, Credit Suisse Group AG was accused of being involved in fraud and violating internal accounting controls, resulting in a $475 million settlement with regulatory bodies.

KYC CDD EDD checks are mandated by global and local regulation, designed to disrupt criminal activity by preventing illegal activities such as fraud, money laundering, and terrorist financing.

KYC, or Know Your Customer, is crucial for financial institutions to verify the identity of their clients and assess the risks associated with them.

This is because identity fraud is a significant concern, with 15% of customers being victims of identity theft at some point in their lives.

KYC helps to prevent identity fraud by ensuring that customers are who they claim to be.

The cost of identity fraud is staggering, with the average loss per victim being $1,300.

By verifying customer identities, financial institutions can reduce the risk of financial crimes and protect their reputation.

This is especially important for high-risk customers, who are 5 times more likely to be involved in financial crimes than low-risk customers.

CDD and EDD checks are mandated by global and local regulation to disrupt criminal activity such as fraud, money laundering, and terrorist financing.

Applying EDD is necessary to avoid high-risk situations that lead to hefty fines, as seen in the case of Credit Suisse Group AG, which paid a total of $475 million to settle charges of fraud and violating internal accounting controls.

Banks must apply additional EDD measures when working with high-risk clients, such as Politically Exposed Persons (PEPs), to prevent misuse of funds.

CDD and EDD checks are designed to prevent illegal activities, and failing to do so can result in severe consequences, including hefty fines.

Conducting KYC CDD EDD is a crucial step in verifying customer identities and understanding their financial information and business activity. Businesses are required to verify customer identities before or during the start of that business-customer relationship as part of Know Your Customer (KYC) regulations.

To verify customer identities, businesses can use online document verification, which involves digitally assessing the legitimacy of a customer's identity document as part of onboarding processes. This approach is more efficient than traditional methods.

In addition to identity verification, businesses should also consider a customer's financial information, both current and previous, as well as their business activity. This includes checking the Ultimate Beneficial Ownership (UBO) structure, which is becoming an EDD requirement.

To conduct EDD, businesses need to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions. This includes individuals with significant control or influence over the entity.

Businesses can use GlobalGateway Business Verification service, which uses artificial intelligence (AI), natural language processing (NLP), and optical character recognition (OCR) to identify Ultimate Beneficial Ownership and structure. This technology locates, deciphers, and extracts shareholder information from official company documents purchased in real-time from government registers.

Here are the steps to conduct KYC CDD EDD:

Implementing Enhanced Due Diligence measures can be a challenge, but it's a crucial step in managing risk and protecting your institution. By adopting a risk-based approach, you can adapt your procedures to the situation, making it more effective.

The Financial Action Task Force (FATF) recommends obtaining additional identifying information from various sources to inform the individual customer risk assessment. This can include carrying out additional searches, such as verifiable adverse media searches.

A risk-based approach is not only beneficial but also flexible, considering the customer and their associated risk from a holistic view. It's adaptable to the size and strengths of your institution, making it a practical solution.

Some practical steps suggested by the FATF include verifying the source of funds or wealth involved in the business relationship to ensure they don't constitute the proceeds from crime. You should also seek additional information from the customer about the purpose and intended nature of the business relationship.

Enhanced monitoring is another key aspect of EDD, required for higher-risk situations. This can be achieved by monitoring companies for transactional, structural or ownership changes to discover potential new risks.

Here are some FATF recommended EDD practical steps:

In the United States, financial institutions must use reasonable diligence to identify and retain the identity of every customer and every person acting on behalf of those customers, as stated in FINRA Rule 2090.

The Customer Identification Program (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) are essential to enforcing Know Your Customer Requirements.

To comply with OFAC sanctions requirements, financial institutions need to know the beneficial owners of the account holder, especially when engaging in international transactions.

In Europe, the 4AMLD states that entities must obtain and hold adequate, accurate, and current information on their beneficial ownership.

The FinCEN Customer Due Diligence Final Rule requires financial institutions to identify and verify the identity of beneficial owners of legal entity customers.

According to FinCEN Guidance FIN-2016-G003, the CDD Rule imposes a new requirement for financial institutions to identify and verify the identity of beneficial owners of legal entity customers.

The Corporate Transparency Act (CTA) will require persons who form corporations or limited liability companies in the United States to disclose the beneficial owners of those corporations or limited liability companies.

The FATF suggests enhanced measures for tracing UBO information when dealing with foreign ownership or directorship.

Here are some key regulatory requirements for beneficial ownership:

Compliance and Security is a top priority for businesses that want to protect themselves and their customers. Perpetual KYC applies ongoing customer due diligence for end-to-end security.

To effectively manage risk and protect against potential involvement with nefarious activities, a Customer Due Diligence checklist is a critical element. This checklist can be a game-changer in identifying and mitigating potential risks.

Businesses must now keep a record of all financial transactions for at least five years by law. This includes any information collected through CDD measures, account files, and business correspondence, as well as any related analysis.

Secure record-keeping is essential, as businesses must also document and store any sensitive information obtained during the previous steps.

Onfido's solution combines a document check with a biometric check to verify a customer's identity and residential address.

Businesses can layer other checks and signals on top of this step, such as requesting bank statements or other official documents, or capturing information from the electoral register.

An effective CDD and KYC solution is built on a combination of technology and expertise, providing higher assurance in a customer's identity than outdated approaches like database checks.

Automated Enhanced Due Diligence (EDD) software is available from KYC compliance providers, but many solutions are ineffective and difficult to implement.

Onfido's suite of identity checks enables businesses to verify customer identity using ID record, proof of address, identity document, and biometric checks.

We continually refresh and index our data sources at minimum every 24 hours, so businesses are kept up to date if they need to conduct ongoing monitoring.

Businesses can use Onfido Studio to orchestrate workflows that meet their KYC requirements in an interactive platform tour, and sign-up for a free trial.

In the financial services industry, the FATF has outlined recommendations to standardize the international response to prevent money-laundering and terrorist financing.

The threshold for needing to conduct EDD varies depending on industry and geography, with financial services being a key sector. This is because financial institutions are at a higher risk of being targeted by money launderers and terrorists.

Politically exposed persons (PEPs) are classed as high-risk because they are at disproportionate risk of being abused for the purposes of money laundering. This means that institutions are required to verify their source of funds (SOF) and possibly ongoing checks to continue to monitor for suspicious activity.

Institutions are also required to undertake adverse media checks, so they are aware of any established links to organized crime or previous links to financial crime. This helps to prevent financial institutions from inadvertently facilitating illicit activities.

Transaction monitoring is a crucial aspect of EDD, and institutions may use various techniques such as velocity rules to monitor whether spending is within an expected pattern.