EDD typically means more information on the source of wealth and source of funds, senior management approval, more frequent reviews and closer transaction monitoring. It is required for foreign PEPs and for relationships involving high-risk countries identified by the FATF, and it is applied where the firm's own risk assessment says risk is high.
Example
For a private-banking client who is a PEP, the bank documents how the wealth was built, verifies it independently and reviews the account every year.
Where it appears in the exams
This topic is relevant for CAMS, CFCS.
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CDD vs EDD vs simplified due diligence: what each requires and when it applies
Related terms
- Customer due diligence (CDD): Customer due diligence is the set of checks a firm does on a customer: identify and verify them, identify the beneficial owner, understand the purpose of the relationship, and monitor it over time.
- Politically exposed person (PEP): A politically exposed person is someone who holds, or has held, a prominent public function, such as a head of state, minister, senior judge, senior military officer or executive of a state-owned company.
- Risk-based approach: The risk-based approach means a firm identifies and assesses its own money laundering and terrorist financing risks and applies controls in proportion to them, instead of treating every customer and transaction the same.
Source: FATF Recommendations 10, 12 and 19. Independent explanation for study purposes, not legal advice.