Enhanced Due Diligence (EDD) is the process of applying stronger, more detailed checks to customers or business relationships that present higher risks of money laundering, terrorist financing, or financial crime. While standard Customer Due Diligence (CDD) applies to most clients, EDD is triggered when risk indicators such as high-risk jurisdictions, politically exposed persons (PEPs), or unusual transaction patterns are present.

EDD is a core pillar of anti-money laundering (AML) frameworks. Regulators around the world mandate that financial institutions adopt a risk-based approach, ensuring that higher-risk customers face more stringent verification and monitoring. Without effective EDD, firms risk onboarding bad actors, missing red flags, and facing regulatory penalties.

Definition Of Enhanced Due Diligence (EDD)

Enhanced Due Diligence (EDD) is an advanced compliance process requiring financial institutions to collect additional information, apply stricter verification, and implement closer monitoring of high-risk clients and transactions.

EDD goes beyond standard checks by requiring:

• Verification of beneficial ownership in greater depth.

• Detailed scrutiny of the customer’s source of funds and source of wealth.

• Senior management approval before onboarding high-risk clients.

• Ongoing, real-time monitoring of transactions.

EDD is therefore not a separate process but an intensified form of due diligence, ensuring that financial crime risks are thoroughly mitigated.

When Is Enhanced Due Diligence Required?

EDD is triggered by risk indicators that elevate a customer relationship beyond normal thresholds. These include both regulatory requirements and institution-specific risk criteria.

Politically Exposed Persons (PEPs)

All PEPs, along with their family members and close associates, must undergo EDD. Their access to public power makes them higher risk for corruption and money laundering.

High-Risk Jurisdictions

Clients based in, or transacting with, countries identified by the Financial Action Task Force (FATF) as high-risk jurisdictions automatically trigger EDD measures.

Unusual Transaction Behaviour

Patterns such as large, complex, or opaque transactions outside the normal profile of the client require EDD.

Sanctions Exposure

If a client or related entity has links to sanctioned parties, firms must perform EDD before onboarding or continuing the relationship.

The EDD Process In Practice

The EDD process expands on standard due diligence by requiring a more thorough set of checks and validations. Each stage provides regulators with assurance that the institution understands the risks of the relationship.

Collecting Additional Documentation

Beyond basic identification documents, firms collect corporate records, shareholder registers, tax filings, and beneficial ownership details.

Source Of Funds And Source Of Wealth Checks

Institutions verify how a customer obtained their wealth and where specific funds involved in transactions originate. This ensures money is not linked to corruption, fraud, or organised crime.

Senior Management Approval

EDD requires that high-risk clients receive sign-off from senior executives, ensuring accountability at the highest level of decision-making.

Ongoing Monitoring

EDD is continuous. Tools like FacctGuard, for transaction monitoring and FacctShield, for payment screening provide real-time oversight to detect emerging risks.

Adverse Media Screening

Firms monitor global media and news reports to identify reputational risks, corruption allegations, or links to illicit activities.

Why EDD Is Essential For AML Compliance

Enhanced Due Diligence is more than a regulatory obligation; it is a safeguard for the integrity of the financial system. By applying EDD, firms reduce exposure to financial crime while protecting themselves from regulatory penalties.

• Mitigating Risk: EDD ensures that high-risk clients are not able to exploit gaps in compliance controls.

• Meeting Regulatory Expectations: EDD demonstrates that the institution applies proportionate scrutiny where risks are elevated.

• Protecting Reputation: Institutions that fail to apply EDD risk being linked to corruption scandals or enforcement actions.

The European Banking Authority (EBA) highlights EDD as a central element of AML risk management, particularly for PEPs and cross-border relationships.

Regulatory Requirements For Enhanced Due Diligence

Regulators globally enforce EDD under AML and counter-terrorist financing frameworks.

• European Union: Under AMLD5/6, firms must apply EDD to high-risk customers and transactions involving non-cooperative jurisdictions.

• United Kingdom: The Money Laundering Regulations require EDD for PEPs, correspondent banking relationships, and high-risk third countries.

• Global Standards: FATF recommendations set the baseline, requiring EDD for higher-risk situations and specific scenarios such as PEPs and cross-border correspondent banking.

Key Challenges In EDD

While essential, EDD presents challenges for financial institutions, especially at scale.

Operational Burden

EDD requires significantly more documentation and oversight, slowing onboarding and increasing costs.

Data Gaps And Transparency Issues

Beneficial ownership records are not always reliable, particularly in offshore jurisdictions.

False Positives

High volumes of alerts from screening systems can create inefficiencies. Platforms like FacctList, for watchlist management help reduce noise through advanced matching.

Balancing Risk And Customer Experience

EDD can create friction for legitimate clients if not implemented proportionately. A risk-based approach ensures fairness while maintaining compliance.

Best Practices For Effective EDD

To comply effectively, institutions must take a structured and technology-enabled approach to EDD.

• Risk-Based Approach: Apply EDD proportionally, focusing resources on the highest-risk clients.

• Use Automated Tools: Platforms like FacctView, for customer screening improve accuracy and reduce manual effort.

• Leverage Adverse Media: Monitoring public sources helps capture early warning signs of risk.

• Integrate EDD With Continuous Monitoring: EDD is not static, ongoing monitoring of transactions and relationships is essential.

• Document And Audit: Maintaining evidence of EDD decisions ensures accountability and compliance.

The Future Of EDD In AML

Enhanced Due Diligence will continue to evolve as regulatory expectations increase and financial crime grows more sophisticated. Key trends include:

• Greater integration of AI and machine learning to detect patterns of illicit behaviour in complex datasets.

• Expansion of global beneficial ownership registries to improve transparency.

• Wider use of SupTech tools by regulators to oversee how firms apply EDD in real time.

• Increasing focus on ESG and reputational risk as part of EDD frameworks.

EDD is not only about compliance but also about protecting financial institutions and society from corruption, fraud, and criminal activity.