Which level of due diligence is typically used when a customer has a higher risk profile?

Enhanced Due Diligence (EDD) is the appropriate level of due diligence applied when a customer has a higher risk profile. This heightened scrutiny is necessary because individuals or entities with a higher risk profile may be more likely to engage in activities related to money laundering, terrorist financing, or other illicit activities. EDD involves a more in-depth analysis of the customer's background, financial transactions, and the nature of their business.

This can include obtaining additional documentation, conducting more thorough transaction monitoring, and understanding the source of funds. It is a proactive approach to ensure that any risks associated with these customers are fully assessed and managed appropriately. EDD is critically important in safeguarding financial institutions against potential risks and ensuring compliance with regulatory requirements related to customer verification and monitoring.