Simplified Due Diligence

In the banking and financial sector, various steps are applied to customers for investigation, Like CDD, EDD and SDD. Here, in this blog, we are talking about Simplified Due Diligence or SDD, which is conducted on the low-risk customer. Here low-risk customer refers to customers who cannot be predicted to be involved in money laundering and terrorist funding. SDD is an ongoing part of customer monitoring when finding something fishy. Standard due diligence is applied when some risk is found in the SDD process. The Standard due diligence determined the risk level of the customer. If SDD tags high risk to the customer Enhanced Due Diligence will be conducted.

What Is SDD?

SDD full form in Banking is Simplified Due Diligence procedure. SDD comes under the Customer Due diligence practice in KYC. Financial institutions like banks use this process to verify the customer’s identity and check the customer risk level. It conducts on the customers who are at least at risk of being involved in money laundering and terrorist funding.

SDD check the authenticity of a person by verifying official identity cards. It checks the nature of the transaction and the source of money. Simplified Due Diligence helps banks to use resources and time on high-risk customers.

SDD is a simple and easy process, however, the banks need to keep an eye on each customer. Ongoing monitoring will help the bank to detect strange behaviors and keep the financial system secure.

Simplified Due Diligence Requirements

SDD is a less rigorous process to collect and investigate the customer, if we compare it to EDD and CDD. But, it still has the same basic requirements, like

• Verifying the Identity of the customer
• Verifying the beneficial owners and partners
• Ongoing Monitoring
  Understanding the reason and type of relationship.

These are steps a bank should conduct while conducting SDD according to the Financial Action Task Force. Banks have the freedom to make their own set of rules for conducting SDD but they must include the above steps. Otherwise, they can face penalties.

Simplified Due Diligence Checklist

Here is the overview of the checklist Simplified Due Diligence have

• Confirm the identity of all customers.
• Determine and validate all ultimate beneficial owners (in business dealings with companies).
• Establish customer risk profiles for all customers.
• Regularly monitor customer activity and transactions.
• Report any detected suspicious activity.

Simplified Due Diligence Examples

Here are the examples of SDD

• Low-Risk Customer Verification: it verifies low-risk customers such as government bodies, or publicly listed companies. This process only involves basic identity and verification without extreme background checks.
• Small Transaction: For : low-value transactions, only a few basic checks are done, as these transactions are considered low risk.
• Regular Customers: Customers with good records without showing any suspicious activity, SDD is enough to apply to them for the due diligence process.
• Specific Geographic Locations: Countries with strong rules against AML with low corruption levels qualify for SDD. Whereas high-risk countries are qualified for EDD.
• Low Risk Business Types: Utilities and retails are known for lower risk of money laundering and SDD is applicable for them.

In the above cases, the Simplified Due Diligence process saves time and resources while ensuring compliance with AML regulations.

FAQs

1. What is the difference between enhanced and simplified due diligence?

Simple Due Diligence is conducted on high-risk customers, who are at low risk to involved in financial crime. Edd or Enhance due diligence is undertaken on high-risk customers at the potential risk of money laundering. This is the simple difference between edd and Sdd.

2. What is standard due diligence?

Simplified Due Diligence is a simple level of check that involves identity verification. However, standard due diligence is conducted on the medium-risk customer. It involves a comprehensive check on financial statements, market conditions and legal compliance. Standard due diligence is needed when moderate risk is shown.

3. What is SDD in AML in KYC?

SDD or Simplified Due Diligence, is an easy process to check the transaction and business relationship. Whether they are safe or legal. SDD usually conducts those who are at a very low risk of money laundering or any other illegal activities. This method helps banks and financial institutions follow the rules without overspending on money and time.

4. What are the basics of due diligence?

Due Diligence is process taken by the organization to conduct verification and investigation on customer before starting any business. This process involves several steps including customer identification, the nature of the transaction, detecting suspicious activities, record keeping etc.

Simplified Due Diligence (SDD) is a process used by banks to verify low-risk customers, ensuring compliance with anti-money laundering regulations.