Enhanced customer due diligence (ECDD) program
Part A of your anti-money laundering and counter-terrorism financing (AML/CTF) program must include an enhanced customer due diligence (ECDD) program that documents the actions you take when the money laundering or terrorism financing risk is high.
You must monitor all customers with a view to identifying, mitigating and managing ML/TF risks. The due diligence measures that are appropriate for a particular customer may change over time as the ML/TF risk profile of the customer changes.
Enhanced customer due diligence involves carrying out extra checks on a customer’s identification, collecting additional information and doing additional verification.
Carrying out ECDD allows you to decide whether a suspicious matter should be reported. ECDD plays an important role in detecting, disrupting and preventing money laundering and terrorism financing. It also protects your business or organisation from being exploited for criminal activity.
Suspicious matter reports and ECDD
Submitting a suspicious matter report (SMR) does not manage the ongoing risk of a customer on its own, nor does it alter the fact that a customer is high risk. When a suspicion is formed (and an SMR submitted) about a customer, you also need to apply ECDD.
When to apply your ECDD
You must apply your ECDD in the following high-risk situations.
- When you determine through your risk-based systems and controls the money laundering/terrorism risk is high.
- The service you are asked to provide is for a customer who is (or has a beneficial owner who is) a foreign politically exposed person (PEP).
- A customer’s suspicious activity or behaviour may lead to you making a suspicious matter report (SMR).
- A transaction involves a person or a company that has a presence or is incorporated in a prescribed foreign country.
Your ECDD program and ECDD measures
Your ECDD program must:
- define the types of customers, designated services, channels and jurisdictions that you consider to be high or greater level of risk, and ensure procedures allow for consistent implementation of ECDD processes
- specifically identify who is responsible for carrying out ECDD
- establish controls for consistently applying ECDD to ensure its operation, monitoring and internal reporting.
The ECDD measures you use must be appropriate to the situation, including a range of the measures outlined below. It is also important to maintain an auditable trail of decision making.
You must get more information from the customer or third party sources so you can do one or more of the following:
- clarify or update customer or beneficial owner information
- take reasonable measures to identify the customer’s and beneficial owners’ source of wealth and funds (‘reasonable’ means what is practical and necessary in line with your identified money laundering/terrorism financing risk)
- clarify the nature of their ongoing business with you.
You may also need to undertake a more detailed analysis of the customer’s identification (KYC) information. This might include:
- taking reasonable measures to conduct more analysis of the source of the customer’s and each beneficial owner’s wealth and funds (‘reasonable’ means what is practical and necessary in line with your identified money laundering/terrorism financing risk).
When verifying or re-verifying customer information, you must do so in accordance with Part B of your AML/CTF program, Customer identification.
- If your customer is an individual, you must verify or re-verify their full name and either their date of birth or residential address so you are satisfied they are who they claim to be.
- If your customer is a company, trust, association, partner or government body you must also verify or re-verify information.
- Verify or re-verify the information using your company’s usual customer identification procedures.
- Make sure those checks are based on reliable and independent documentation or electronic data.
In some circumstances you may need to examine and monitor the customer’s past and future transactions.
- You should try to establish the purpose and reason for transactions and monitor their types and frequencies.
- You should monitor the expected nature and levels of your customer’s transactions, including any future transactions.
You must seek approval from senior management to:
- continue a business relationship with the customer
- keep providing designated services to the customer
- process a transaction on an account.
The content on this website is general and is not legal advice. Before you make a decision or take a particular action based on the content on this website, you should check its accuracy, completeness, currency and relevance for your purposes. You may wish to seek independent professional advice.