Direct Debit is undoubtedly one of the safest forms of payment collection available. Of course,...
Enhanced due diligence in bankingWith the growth of technology and increases in intelligent financial scams, it’s now more important than ever for the financial industry to do their due diligence when working with a company or customer. The ease at which money can be lost online is only growing, so for a business to thrive there must be a level of enhanced due diligence (EDD) undertaken. Continue reading to find out the importance of enhanced due diligence.
What is enhanced due diligence?
Enhanced due diligence is a Know Your Customer (KYC) process that provides an improved level of investigation into potential customers and business partnerships. This enhanced level of scrutiny highlights certain risks that cannot be identified by standard customer due diligence (CDD).
The key difference between enhanced due diligence and customer due diligence is that it looks to establish a higher level of identity assurance by obtaining the customer’s identity and address, and evaluates their risk category.
Enhanced due diligence is designed for dealing with large transactions, or high net worth customers that could potentially be classed as high risk. Certain customers and transactions can actually pose quite a high financial risk to companies, so they require heavy regulation. They are closely monitored to ensure everything is above board, so the company can be confident of going through with agreeing a deal.
What separates enhanced due diligence from Know Your Customer checks?
There are key differences between enhanced due diligence and Know Your Customer that enable companies to further scrutinise a potential customer or business dealing, and they are:
- Detailed documentation - the whole EDD process must be documented in detail, and regulators should have immediate access to reports. This demands more scrutiny on how data is collected and validating the reliability of sources.
- Rigorous and robust - enhanced due diligence must be ‘rigorous and robust’, which requires more evidence and detailed information.
- Reasonable assurances - when calculating a KYC risk rating, EDD requires a ‘reasonable assurance’. This means that whoever makes the approval or denial decision has completed all of the necessary steps and exercised professional judgement.
- Special attention for politically exposed persons - special attention has to be given to PEPs as they’re viewed as higher risk individuals because they are in positions that can potentially be abused for money laundering.
Enhanced due diligence checklist
In order to ensure that your enhanced due diligence is up to scratch, there is an enhanced due diligence checklist that companies in the financial sector can use. By following this checklist, you can quickly evaluate whether your due diligence process is up to scratch.
- Understand your customers’ risk profile
- Obtain additional information where necessary
- Conduct extensive background checks and monitor transactions
- Organise and secure your data in line with compliance requirements
- Keep the data available for regulators
Enhanced due diligence challenges
One challenge that enhanced due diligence creates for companies is knowing how much information is enough or necessary to collect to proceed with another company or customer.
Regulators have favoured approaches, like automated anti-money laundering (AML) screening, which provide sufficient assurance while also enabling regulators to electronically audit decisions by banking officials. However, companies are increasingly combining online identity verification and AML screening to effectively hit two birds with one stone during the account onboarding process.
This provides a single automated solution for their enhanced due diligence process.
Enhanced due diligence with Interbacs
Interbacs was established by Bacs software developing experts with more than 30 years of experience in Bacs payment services software. Over the years, we have developed a well-rounded team of developers, project managers and banking experts to provide the ultimate support for all your Bacs payments processing needs, including excellent due diligence on potential customers. Whether you need basic ID and bank verification, or a more in-depth enhanced due diligence, we can build a platform to suit your needs.
We concentrate on delivering the highest quality payment and collection solutions, including Direct Debit solutions, with exceptional management facilities. The friendly, professional and efficient processing team at Interbacs is always on hand to answer your phone calls with a smile and a listening ear.