CDD vs EDD: Understanding the Key Differences in Risk Management

Both Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are key components of AML/CFT regulations that are designed to prevent money laundering, terrorist financing, and other financial crimes. These processes are used by reporting entities to assess and verify the identity of their customers. 

Customer Due Diligence (CDD) is the standard process for assessing a customer's risk profile. This involves identity verification, understanding the nature of their business and what they’re trying to achieve by working with your business, identifying where they are from, and using this information to evaluate the potential for money laundering or other illegal activities. It is typically applied to all customers during onboarding and reviewed periodically.

Enhanced Due Diligence (EDD) is a more in-depth process used for higher-risk customers or situations where the standard CDD does not provide sufficient information. Examples of situations where EDD may apply include when your customer is a confirmed PEP, a trust, a company acting as a vehicle for holding personal assets, or when a transaction is assessed as higher risk due to red flags identified in the customer’s activity or the transaction itself.  EDD involves more detailed investigations and requires additional information to be gathered on the customer's source of wealth, conducting deeper background checks, and regular monitoring of customer transactions.

Most CDD is standard and easy to conduct, and therefore cost-effective to action in-house. When it gets complicated or deals with sensitive client information like source of wealth, a good solution is to outsource it to our CDD compliance specialists who are highly-trained in completing all types of CDD within set timeframes. To find out more about this service, visit our web page below.