Home Technology Edd Banking – Evaluating High-Risk Transactions in a Secure Way

Edd Banking – Evaluating High-Risk Transactions in a Secure Way

209
0
Close up asian business woman using a calculator to calculate the numbers.Business finances and accounting concept

In the digital era, businesses should not only focus on generating revenues but should also keep a track of customer history before performing any transactional activity with them. Formulating new relationships without knowing about the details of the client or business can make the company vulnerable to the potential risks of getting attacked by fraudulent activities. Upon risk evaluating the clients, companies can classify them to deal with them accordingly. Dealing with high-risk individuals such as black-listed people can be challenging for financial institutions. Therefore, implementing an advance procedure of KYC to deal with high-risk customers in financial institutions has become essential with EDD Banking.

Determining the Two Levels of Risk-Based Approach 

To prevent dirty money and illegally earned money from entering the business environment, due diligence in financial services needs to be implied. KYC due diligence will help to investigate the details of an entity before they are linked with the company. Any financial risks associated with their assets will be ensured before any purchasing activity is carried out. FATF (Financial Action Task Force) recommends that all companies must develop a risk-based approach before onboarding clients. This will help them deter money laundering and terrorist fundings risks. For this purpose, mainly two kinds of risk approaches are carried out which are listed below:

  1. Customer Due Diligence – Based on Low Risk 

CDD is a method of KYC for evaluating low-risk individuals. Customer Due Diligence for Banks helps to pull out the background information of the customer before opening their account. According to the CDD checks, verify the customer’s identity and address, evaluate the third-party clients, and constantly monitor the activities of the clients who possess a low risk to the company. This is critical as people who are onboarded as low-risk can turn into high-risk individuals later by forming any links with unauthorizing the people.

  1. Enhanced Due Diligence – Based on High Risk

To deal with the high-risk individuals who have a greater chance of providing harm to financial institution’s needs to be dealt with a more strict method of KYC procedure known as Enhanced Due Diligence (abbreviated as EDD). Companies must ensure that their individuality is in accordance with AML and KYC compliance measures to mitigate risks of fraud. It highlights those risks that the client’s due diligence process was unable to detect. 

When Does The Need For EDD Arise?

The KYC process of EDD is performed on individuals who are politically exposed persons or have any links with them. It could also consist of any high-net-worth client such as major stakeholders and chief of staff etc who might be prone to money-laundering activities. Linkage of any such individual with a firm requires the process of enhanced due diligence. If a PEP wants to open an account in a bank, first of all, their identity information is required, then their proof of source of funds is mandatory, details regarding at what position they are residing now such as government official or politician, etc. is needed after which the client history is monitored to detect any illegal transaction of money. A problem depicting EDD is ensuring how much information is need for the evaluation of an entity. Thus, determining the levels and classifying the high risks can prove to be helpful. 

Suggestions For Making Customer Onboarding Secure with EDD

Constant monitoring of the high-risk individuals to catch them before they execute any wrongdoings. Obtain any additional information which would be essential for reviewing the client’s details more precisely. This process can be performed through the automated version of e-KYC for quick results. If any data breach action is detected, the system needs to be prompt with a message to let the company know about the status. Businesses should not ignore those clients who provide greater revenues to them but conduct suspicious activities. Compromise should not be made on the procedures of enhanced due diligence. 

Wrapping it Up

Trusting the client without fetching out their background information can prove to be dangerous for the company in the long run. By implementing e-KYC solutions, companies need to formulate a risk-based approach for detecting criminals. High-risk individuals will be assisted through EDD while low-risk clients will be dealt with CDD. Ongoing ed, the brand image of the company will get improved as all the clients in the market will know that this business does not onboard any high-risk customers. Increase customer conversion rates will ultimately lead the company to generate a greater amount of profit.