Who Are High-Risk Customers? - Types Of High-risk Customers | Neotas - Enhanced Due Diligence (2024)

FAQs

Who Are High-Risk Customers? - Types Of High-risk Customers | Neotas - Enhanced Due Diligence? ›

Clients with Criminal Ties: Individuals or entities that have been linked to financial crimes, such as fraud, embezzlement, or money laundering, are considered high-risk customers.

When is enhanced due diligence needed? EDD is needed for higher-risk customers; customers that pose higher money laundering or terrorist financing risks and thus present increased exposure to banks.

High-risk customers are individuals or businesses that present a greater potential for causing financial, legal, operational, or reputational harm to your company, often due to their poor security, financial instability, industry, regulatory status, or business practices.

Enhanced due diligence shall be applied to customers that are assessed by the covered person or under this Part as high risk for ML/TF. For customers assessed to be of low risk such as small account balance and transactions, a covered person may apply reduced due diligence.

The Enhanced Due Diligence procedures are used for high-risk customers. An example of such customers can be Politically Exposed Persons (PEPs). By FATF standards, PEPs fall under the category of high-risk customers because they are in positions that can be potentially abused for the purpose of money laundering.

We don't classify government bodies, government-owned companies, regulatory and supervisory bodies, semi-government corporations, or banks and financial institutions licensed by the central bank as high-risk customers. These entities are not seen as high risk customers.

In summary, CDD is a standard process used to assess a customer's risk, while EDD is used when a customer is considered to present a higher risk and requires amore thorough investigation.

A risk-based approach

This means that those customers that potentially pose a higher risk will be subject to enhanced due diligence processes. Differing levels of due diligence will be applied depending on the nature of the customer's relationship with the bank and their risk profile.

What is enhanced due diligence for PEPs? ›

Think of a politically exposed person (PEP) or one who runs a business dealing with a high volume of cash transactions. As part of the EDD process, these customers must reveal more information about their source of funds and business activities.

Due Diligence is primarily carried out by equity research firms, fund managers, individual investors, risk and compliance analyst and firms and broker-dealers.

Simplified due diligence is only meant to be used when there is a low risk of money laundering, tax evasion, criminal or terrorist financing, and other financial crimes. Scenarios can include, but are not limited to, when: The customer is a government entity. The customer is a publicly-known company.

KYC is required to be done once in every two years for high risk customers, once in every eight years for medium risk customers and once in every ten years for low risk customers. This exercise would involve all formalities normally taken at the time of opening the account.