A Complete Guide to Enhanced Due Diligence Checklist for Inspecting Potential Customers
As businesses are getting more intense in their growth and sustainability, the requirement for the scrutiny of the customers has also increased. The requisite for businesses to check the essential credentials of the consumers or the individuals has been done through an enhanced due diligence checklist and there is no other solution for this. Enhanced due diligence checklist consists of extensive protocols, which are done through a series of steps, which we will be discussing in the blog given below in detail for better comprehension.
Key Takeaways
- What is Enhanced Due Diligence?
- Enhanced Due Diligence Requirements
- Working Frameworks of Enhanced Due Diligence
- Final Remarks
What is Enhanced Due Diligence?
Enhanced due diligence is a set of scrutiny procedures that financial institutions have to integrate for identifying high-risk consumers and irregular financial conductions for potential illegalities.
Each year, around $2 trillion in illegal funds flows through the international monetary system in spite of governments, regulators, and financial institutions that are working hard to keep stability aligned through legislative measures, enforcement agencies, and better teamwork.
For diverse organizations that are trying to safeguard against terror funding, understanding consumers is essential, and enhanced due diligence is a detailed KYC protocol that can assist.
Enhanced Due Diligence Requirements
All FATF (Financial Action Task Force) members should integrate customer due diligence demands as part of their internal anti money laundering or CFT regulations mentioned in the 10 of the 40s Recommendations.
Moreover, FATF’s recommendation 19 mentions that enhanced due diligence measures should be executed on “business associations and financial conductions with innate and juristic persons and financial institutions from diverse countries for which this is known by the Financial Action Task Force. Financial institutions should execute KYC or AML and all customer due diligence protocols for new company relationships which results in occasional financial conductions if there is any money laundering or terror funding happening. The surveillance should be continuous rather than a one-time protocol.
The FATF detects consumer, country, and product terror funding threats in the customer due diligence guidelines. Enhanced due diligence is usually required for individuals or situations that pose serious risks, and some of them are given below in bullet points for better comprehension:
- A business relationship executed in irregular scenarios, for example, unascertained geographic distance between the form and the consumer.
- Funds received from unidentified or independent intermediaries.
- Self-employed consumers or those facing monetary sanctions.
- Legal entities or setups used for holding personal assets.
- Businesses with proxy shareholders or ownership through unregistered shares.
- Companies handle large amounts of cash regularly.
- Ownership arrangements of the business seem overly intricate, unclear, or hard to understand.
- Regions lack proper anti-money laundering or counter-terrorism financing frameworks.
- Nations under sanctions, trade restrictions, or with high corruption or criminal activity levels.
- States involved in financing or supporting terrorism or hosting recognized terrorist groups.
- Exclusive banking services for high-net-worth individuals.
- Transactions or business dealings conducted anonymously or without direct interaction.
Working Frameworks of Enhanced Due Diligence
After pursuing the Financial Action Task Force, businesses should integrate risk-based enhanced due diligence protocols that consider the particular anti-money laundering measures that persons present. These involve the following steps, which are given below for better comprehension:
- Acquiring extra client identification records
- Determining the origin of financial resources or assets
- Conducting a detailed analysis of the business connection or transaction objective
- Enforcing continuous oversight processes
Enhanced due diligence is the standard protocol of their business relationship for a diverse number of entities detected.
A warning should also intensify enhanced due diligence in a financial conduction scrutiny system if it is identified as illegal for further investigation. Moreover, additional credentials, which are either from a relationship manager or the consumer, may be required, and the business should plan internal and external investigations to learn more about the consumer and the financial conduction.
The Bottom Line
As we move forward toward the final remarks, it is important to discuss some attributes of the enhanced due diligence, and the prior one is that it consists of a mixture of tech and proficiency.
As the threats and the imposter’s behavior continuously vary within businesses, it must be treated as flexible and advanced with their approach to enhanced due diligence as with the other facets of their anti-money laundering policies. Technology offers valuable solutions to assist enhanced due diligence protocol, but human circumspection is essential to identify and address new threats.
