For financial institutions across the globe, safety and security are top priorities, and compliance with anti-money laundering laws and regulations is essential. In order to protect customers and your own business from threats of financial crime and terrorism, it’s your duty to conduct AML checks on each customer.
One important aspect of these checks is due diligence, but there are levels to these investigations that can be determined by the assessed threat level of a customer. In this blog, we’ll dive into Simplified Due Diligence, what this less stringent process involves and what to include in your Simplified Due Diligence checklist.
Simplified Due Diligence is a procedure used for customer verification that allows businesses to perform lighter due diligence checks if a business is deemed low risk of money laundering or financial terrorism.
SDD still means that important due diligence checks are carried out, but it allows companies to focus their resources on higher-risk clients whilst continuing to comply with regulations and screen customers.
Instead of assessing all customers at the same level, risk is decided based on:
With these checks carried out, you can determine if a customer is low risk. If they are, SDD can be used rather than standard or Enhanced Due Diligence.
After conducting an initial risk assessment, you can decide if SDD can be used.
Low-risk customer scenarios include:
Conducting SDD should only occur if your customer meets these requirements during a risk assessment.
The main differences between simplified, standard and enhanced due diligence are the level of depth given to each investigation.
| Type | Procedures | Customers/ clients |
| Simplified Due Diligence | Standard identification procedures, with less frequent ongoing monitoring. | Regulated financial institutions or government bodies. |
| Customer Due Diligence | Full screening and ID verification. Regular ongoing monitoring. | Small businesses, retail customers. |
| Enhanced Due Diligence | Detailed checks, SOF and SOW verification, PEP screening and risk assessment. | PEPs and clients or businesses in high-risk jurisdictions. |
In order to ensure your AML checks are still compliant, you need to know the key components of SDD.
With reduced ID checks, there is no need for several documents and forms of ID to be provided. Instead, you can accept one form of trusted ID, like government-issued IDs that would have already undergone AML checks. You can also rely on IDs already verified on your system if the individual is already a client.
When using automated ID verification software like TripleCheck, there may also be no need for manual checks or verification.
When risk is lower, you can still identify beneficial owners and stakeholders, but these identities can be confirmed with company registration details. External verification from regulatory databases can also be a sufficient investigation, alongside verifying if a company is publicly listed.
Whilst ongoing monitoring should always be carried out at any level of due diligence, it can be less frequent or intensive with SDD. Database checks can be automated, and manual checks can be reduced. Alerts will still be created if significant changes in customer behaviour or alarming transactions are detected, but risk assessment can be periodic instead of constant.
Accurate record keeping is needed to ensure compliance and ongoing monitoring. To help simplify the process, investing in software that stores and updates customer information will avoid the need for manual filing and also allow smart AML monitoring systems to easily keep track of customers.
Even looser due diligence procedures are still subject to strict conditions, and there are some expectations from compliance bodies:
SDD checks allow for quicker onboarding and save resources by reducing the need for manual customer checks. Simplified Due Diligence achieves this without compromising on compliance and safety.
If you’re a lower-risk client, facing smooth onboarding and fewer technical hurdles makes for a greater experience. If customers are faced with extended verification processes and document checks, this can discourage customers from returning or recommending your service, so SDD can help to retain customers.
Focusing resources and time on high-risk clients is the best way to ensure resources are utilised effectively. Only using further investigations and EDD when needed can help save businesses money, especially if you’re a smaller organisation.
To enhance your SDD procedures, there are several best practices your financial organisation should adopt:
Conducting simplified due diligence isn’t about cutting corners with compliance checks; it’s about effectively and efficiently targeting resources where they’re most needed. By applying SDD to lower risk customers, your company not only upholds client relationships but also ensures the correct level of checks are being conducted.
With a strict monitoring and documentation process, you can ensure your simplified checks comply with regulations as they continue to change.
To stay ahead of new AML changes and to simplify due diligence checks, request a free demo of our comprehensive AML software at SmartSearch. To find out more about how we can streamline your checks, get in touch with our team today.