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How EDD Banking Helps in High-Risk Transactions | An Overview

In today’s world, generating revenue shouldn’t be the only focus of banks or any business. They should also focus on the clients with whom they are going to deal. To check if the customers are legitimate, CDD has been made a mandatory thing by the regulatory authorities. However, it does not help when there are any high-risk customers such as those who have any sanctions upon them or the ones who are blacklisted. Thus, EDD banking came as a ray of hope to prevent the banks from high-risk profiles. 

EDD banking is a procedure of KYC verification, performed on the risk customers categorized by the risk rating system of KYC. It provides an inspection of the high-risk clients and transactions which is not possible with Client Due Diligence

What FATF Recommends for High-Risk Transactions?

FATF recommends that banks or any other financial sector carry out a risk-based approach when they are going to deal with high-risk clients or transactions.  This would help the financial sectors, access and prevent themselves from terrorist financing or any money laundering activities. 

Process of EDD

EDD or “Enhanced Due Diligence” is a simple procedure that completes within a few minutes. Here’s how EDD banking is carried out: 

Risk-Based Approach

Firstly, all the clients are classified into several categories. Classifying the customers helps the banks or any other company to better understand its clients by acquiring their appropriate details. 

Create an EDD Checklist

The second step is to create a checklist of KYC checks and Enhanced Due Diligence AML policies for high-risk customers. This is called the EDD checklist which provides the required details of a customer collectively. 

Analyze Funds’ Source and UBO

The third step is knowing the client’s source of income. It is important for banks and all the other sectors as it would prevent any illegal money from entering the businesses. To verify a client more effectively, all assets whether financial or non-financial must be known. And if there are any discrepancies in the client’s statement or record, the verification is stopped immediately. For B2B transactions, beneficial owners and subsidiaries must also be verified during the company’s UBO screening. 

Ongoing Transaction Monitoring

The fourth step is to monitor the transaction record of the customer. The transaction is monitored by checking the receiver of the payment, duration of the transactions, and other similar details. Moreover, this step is carried out to check the transaction threshold made by the client.

Analyze Business’s Local Reputation

What happens sometimes is that besides all the available details, the brand image becomes difficult to analyze. Thus, Enhanced Due Diligence financial services review the brand image of the banks or any other financial sector to tackle all the high-risk transactions. This is carried out by reviewing news and social media platforms etc. 

Physical Address Verification

As EDD is Enhanced Due Diligence, so the address of the client is verified by physically visiting the place too. It is done to authenticate the address whether the address mentioned on their identity document really exists and the customer is also associated with it or not. If verifying the address physically is not possible, then the online verification of the client’s address is carried out. 

How Does EDD Help the Banks?

EDD banking not only helps to verify identities and prevent fraud but also has some other benefits. The perks of employing EDD banking are as under: 

Enhances Customer Experience

To verify an individual, plenty of information is required. And all that information not only helps to verify the client with high-risk transactions but also helps you to offer them the services they prefer. Thus, Due Diligence in banking and other sectors enhances the customer experience. 

Keeps the Company’s Files Clean

Each and every sector wishes to have white transactions and clean files and EDD helps them to achieve this goal. Besides authenticating the customer, EDD also verifies the entities associated with that particular business such as the shareholders. This is how it keeps the banks and businesses safe from any kind of criminal activity.

Builds the Brand’s Image

Besides Corporate Social Responsibility, the dream of brand reputation can be achieved through EDD. When the transactions are monitored strictly, all the potential clients would have a positive image of the brand. They know that those companies have better EDD compliance and no high-risk clients are onboarded in the company. 

Keeps Fraud away

Enhanced Due Diligence not only combat money laundering but also prevent other fraud schemes such as account takeover, or terrorist financing. Keeping the financial crimes away helps the company make more profits and flourish in the competitive market. 

Final Thoughts

EDD banking is a one-stop solution to tackle any high-risk transactions and customers. Apart from the strong verification procedure, it has many other benefits. From keeping the fraudsters at bay to enhancing the business’s credibility, it is the best choice for all companies.

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