Criminal financial fraud is dramatically increasing, in response to the 30% increase in fraud losses during the first half of 2021, financial and professional services providers are looking for solutions that improve the effectiveness of their know your customer (KYC) processes.
Enhanced due diligence (EDD) goes a step further than customer due diligence by requiring an enhanced risk assessment and much greater evidence and documentation.
EDD is one tool that helps financial service providers, and professional services practices such as tax experts, accountants and lawyers, to both better protect against fraud and improve the understanding of their customers’ needs.
According to the UK financial regulator, the Financial Conduct Authority (FCA), if a potential customer falls into specific categories, then EDD is required. These categories include:
In addition to the formal definitions of risk provided by the FCA and legislation in other jurisdictions, those conducting EDD are required to use professional skill, judgement and reasonable care.
The purpose of EDD is to mitigate the risk of fraudulent criminal activity and the resulting loss of financial assets. The financial or professional service provider, or their agents, completing the checks want to be sure their customer’s purpose and activities are legitimate.
Standard KYC due diligence processes to deter fraud and manage the risk presented by the vast majority of financial and professional services customers are now largely automated and include steps such as:
The additional checks will largely depend on the risk assessment completed on the potential customer that determined a need for EDD in the first place. These can include:
To support the above additional measures, enhanced record-keeping and data protection processes and policies are fundamental, particularly if the activity may one day endure the scrutiny of a criminal investigation and the courts.
Secure and compliant digital platforms are increasingly used to facilitate KYC processes between customers and financial and professional services providers.
Bonafidee’s digital engagement platform enables organisations and individuals to engage online in a safe, compliant and fully evidencable way. To find out more about digital customer verification solutions, download our guide, or contact our team.