In the age of the digital revolution, financial crimes and other forms of fraud are increasing day by day. Banking Industry has to be vigilant against the attacks of cybercriminals. In this regard, they have to follow AML/KYC guidelines to safeguard their systems against cyberattacks. As per the guidelines, every business must perform respective due diligence processes to show adherence to international guidelines. There will always be risky clients in the onboarding process and the application of the EDD/CDD system will evaluate their data at regular intervals. These steps are critical in countering money laundering and terrorism financing cases around the world.
EDD Banking: Why Should it be Applied?
It is an advanced approach that facilitates the financial sector in running detailed background checks on clients. When the system flags a customer as a risky entity, their data is also cross-checked against global watchlists. International regulatory bodies had to enforce such measures to control the rising cases of money laundering. It is also the reason that KYC/AML guidelines are becoming stringent with the passage of time e.g. the introduction of 6AMLD.
According to the EDD banking procedure, the experts must gather information about UBOs and the source of funds behind the business operations. Moreover, they must explicitly mention the nature of their business, type of business relationship, and nature of transactions between the companies.
EDD Banking Procedure: How is it More Advanced than CDD?
The application of the EDD approach depends upon the risk evaluation measures taken by the organization. It also depends upon their customer base. After the verification procedure is complete, the system tags the clients based on their risk profile i.e. low, medium, and high.
The EDD banking system demands additional data from its clients during the onboarding process. Companies can decide to what extent they want to apply the due diligence process. In case of misapplication, the company can face serious legal consequences. This can be a huge negative blow to the market reputation of the company which can be damaging to the sustainable growth of the company.
EDD Banking and PEP Lists
According to the guidelines, the EDD banking system is mandatory when a customer applies for any new services or products. In cases where the company gets to know about in-house corruption, the top management can implement the EDD banking system to tackle the issues. The system enables the organizations to cross-check the data against global watchlists and PEP lists. The cross-checking goes in-depth and identifies all the stakeholders (parent and sister companies) in the evaluation process.
pan style=”font-weight: 400;”>In the case of wealthy clients, the EDD banking procedure can find out their money laundering cases and other corruptions. Having links with high-profile candidates and political parties are dangerous signs linked with highly risky clients, as per Financial Action Task Force (FATF). For instance, if someone has connections with arms dealers or gambling service providers, these signs are big red flags.
The Significance of Enhanced Due Diligence: Why Should EDD banking be Applied?
There are cases where companies cannot apply the EDD banking system to all of their highly-risky clients. The problem comes when it is hard to figure out someone’s affiliation with any political party or other highly risky candidates. This is where the company must work on detecting the minor risk factors linked with the client. It means that the company cannot ignore those highly risky clients in any case so that they can actively take action against financial fraud.
A Great Motivator behind EDD Banking: The Fraud Case of an Investment Banking Company
In the year 2019, the SEC in the USA highlighted the scandal of an investment banking company named Credit Suisse. They were involved in fraud cases and according to Bloomberg News, the company had to pay around $500 million to the global watchdog, the USA Department of Justice, and the UK’s FCA as a penalty. These cases carry a lot of significance because they point to the application of stringent client identity verification procedures.
Concluding Remarks
Finally, the EDD banking system is an important factor in dealing with highly risky clients because the Customer Due Diligence process does not go in-depth. EDD banking system gathers personal data in detail which can be uncomfortable for some clients but it is critical for accurate authentication.
The application of EDD banking enhances the credibility of the financial organization and sends a positive message to the users that the company cares about its clients. It is according to the AML screening procedure for verifying the identities of their consumers. These steps enhance the credibility of the organization in the market and ensure a pleasant experience for the clientele.
