Cybercriminals and professional scammers are getting on the nerves of regulatory authorities, multiple cases all over the world have been reported of financial crimes and data breaches. In most cases, banks and institutions failed to prevent the fraudsters due to incompetent KYC/AML solutions and security barriers. Validating future alliance’s background and source of monetary gain must be the highest priority of businesses which is the sole purpose of Edd banking.
Recent statistics show, almost $800 billion to $2 trillion is getting laundered all over the world every year. Corporations and banks are required to go an extra mile to assure the safety of customers’ data and funds and equity of the bank/financial institution as well.
(Enhanced Due Diligence) EDD banking is the extension of the (Client Due Diligence) CDD process, where riskier clients are kept constantly under observation.
Difference Between CDD and EDD
For KYC compliance, the Customer Due Diligence process authenticates the personal identifiable information of the individual or UBO of a firm prior to onboarding. The e-kyc solution only verifies aspects such as name, address, location, dob, and relevant data. Afterward, a rating is given to all clients.
The Edd banking process based on that given rating analyzes the professional activities and wealth sources of individuals/owners for a never-ending period.
The ongoing screening by AML solutions entirely depends on EDD banking. It monitors and observes the movements of clients and also his/her corporation forever to avoid any misfortune.
How EDD Banking is Conducted?
Post KYC process, collecting and authenticating name, dob, location, proofs of residence, corporate and residential address, and rest. The clients are divided into different groups and are monitored on a consistent cycle.
A risk rating is assigned to the profile of each client indicating the level of risk associated with conducting business with the person or firm. It helps the firm in classifying the profiles and to separate high-risk associated clients from others. There are regularly three categories: lower risk, higher, and extreme. The Edd banking screening process for all groups is exactly the same, where every major transaction is processed and verified thoroughly.
Monitoring of The UBO of Firm
The accounts of business entities are more important as greater finance means greater risk. In EDD banking, apart from the personal details of the beneficial owner of the firm, the banks/institutions verify the nature and legality of the business and validate the stakeholders as well to make sure they are clean and running a legitimate business. The process covers everything and ensures no asset or monetary gain source is kept confidential from them.
Enormous Withdrawals/Deposits or Substantial Loan Request
Abundant transactions taking place frequently call for EDD banking, huge sums of money deposited or withdrawn increase the risk of money laundering.
If the client requests a lump sum amount of loan, defined measures of EDD banking must be taken into account, updated records of the owner and firm must be obtained prior to sanction.
Monitors The Transaction Patterns
Edd banking recognizes even the slightest deviations in the transactional behavior of the customer. Smurfing is the oldest trick in the book of scammers, instead of making huge deposits/withdrawals, sets of small amounts are requested to avoid suspicion.
This gets easily prevented through the AI-powered models of AML solutions integrated with human verification.
Where EDD Banking Comes Into Practice?
EDD is an integral part of AML screening, there are a couple of scenarios where the financial organizations are obliged to analyze the client’s activities and his/her transactions such as to make sure that the individual or firm isn’t associated with an illegal scheme of things.
After e-kyc, the procedure comes into implementation in different situations such as :
- The customer/firm deals in a riskier business comparatively such as gambling and casino
- Clients who have opaque beneficial ownership structures
- Withdrawals and deposits, way more than what’s considered normal. Transaction of substantial amount always pose a greater risk of money laundering
- In Edd banking, if the client or firm is a politically exposed person, the risk bar does rise as people with great influence and power are more likely and able to commit financial frauds
- If the geographic location of the person or beneficial owner of the firm is one, where the ratio of risks and frauds committed is relatively high or the country is mentioned in the FATF list of countries under observation
Edd banking is an integral part of AML screening, it’s an ongoing process that enables banks and organizations to protect the interest of their customers and organization as well. This extension of CDD banking is practiced when high-risk associated clients get onboard, the legality of business and its beneficial owners are constantly monitored if they come from a PEP list, risky business, or other. It’s the prime responsibility of the financial corporations to standardize their AML solutions and perform Edd banking to make sure that they are not indirectly part of any illegitimate activity by assisting the wrong ones.