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Enhanced Due Diligence Checklist: A Complete Guide for Financial Institutions

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As financial institutions face increasing scrutiny from regulators and growing threats of financial crime, Enhanced Due Diligence (EDD) has become an essential component of compliance and risk management. A clearly defined EDD checklist empowers institutions to identify and mitigate risks associated with high-risk customers and complex transactions. More than just a regulatory requirement, an effective EDD checklist is a strategic tool that safeguards reputational integrity and operational resilience.

When Are EDD Checks Required? 

EDD is triggered when a client or transaction poses a heightened risk of money laundering, terrorist financing, or other illicit activities. Common scenarios include dealing with politically exposed persons (PEPs), clients from high-risk jurisdictions, or those with opaque ownership structures. Institutions must also initiate EDD when red flags arise during standard Customer Due Diligence (CDD) or if enhanced scrutiny is mandated by regulatory frameworks.

Enhanced Due Diligence Examples

To better understand the application of EDD, here are several practical scenarios and case-based examples that illustrate when and how financial institutions conduct EDD:

1. Onboarding a PEP

A financial institution is onboarding a client who holds a high-ranking government position in a foreign country. Due to the inherent corruption and bribery risks associated with PEPs, the bank must:

  • Conduct a comprehensive background check, including media and watchlist screening
  • Collect detailed sources of wealth documentation
  • Perform periodic reviews every six months instead of annually
  • Obtain senior management approval before account opening

2. Client Operating in a High-Risk Jurisdiction

A new client is registered in a country known for weak anti-money laundering (AML) regulations. During the onboarding process, the institution would:

  • Apply enhanced scrutiny to the client's financial activities
  • Conduct ongoing transaction monitoring for unusual volume or frequency
  • Investigate counterparties involved in cross-border transactions
  • Require detailed justifications for large fund transfers

What Information is Typically Collected During EDD Checks? 

1. Identifying High-Risk Clients (e.g., PEPs, Offshore Entities)

Start by screening for customers who fall into high-risk categories such as:

  • PEPs
  • Clients operating in high-risk jurisdictions
  • Shell companies or those with complex ownership
  • Entities involved in high-cash or high-risk industries

2. Key Information to Collect and Verify

Institutions should gather the following information:

  • Full legal name and aliases
  • Source of wealth and source of funds
  • Ultimate beneficial ownership (UBO)
  • Purpose and nature of the business relationship
  • Expected transaction volumes and patterns

3. Required Documentation and Evidence

The checklist should mandate the collection of:

  • Official identification documents
  • Company registration and licensing records
  • Financial statements
  • Proof of address and legal status
  • Documentation supporting source of funds

4. Red Flags to Watch for During EDD

Be alert to potential warning signs such as:

  • Inconsistent or unverifiable information
  • Reluctance to provide documentation
  • Transactions that lack clear economic purpose
  • Unexplained changes in transaction behavior
  • Associations with adverse media or sanctioned entities

Enhanced Due Diligence Checklist 

1. Risk Assessment and Client Segmentation

Evaluate each customer using a risk-based scoring model. Assign risk ratings based on factors like geographic location, industry, transaction behavior, and ownership structure.

2. Deep-Dive Investigations and Verification Methods

Conduct in-depth analysis for high-risk clients, leveraging public records, watchlists, and open-source intelligence. Verify documentation and ensure all discrepancies are resolved before client onboarding or continuing a relationship.

3. Ongoing Monitoring and Periodic Review

EDD doesn’t stop at onboarding. Implement real-time transaction monitoring for suspicious activities and conduct periodic reviews to reassess risk levels. Adjust due diligence measures as necessary based on changing client behavior or new regulations.

Leveraging Automation to Streamline EDD Checks 

The Role of Automation and AI in Client Due Diligence

AI-powered tools can analyze large data sets, detect anomalies, and flag suspicious patterns faster and more accurately than manual processes. Automation also reduces human error and ensures consistent execution.

How CLM Platforms Improve EDD Efficiency

Client Lifecycle Management (CLM) platforms, like Fenergo’s, unify onboarding, KYC, and monitoring workflows. They centralize customer data, automate checklist management, and ensure real-time regulatory alignment.

Example of EDD Monitoring Attributes in Action

A CLM platform can trigger EDD alerts when:

  • A transaction exceeds expected thresholds
  • A customer enters a new high-risk jurisdiction
  • New negative media mentions emerge
  • A beneficial owner is flagged on a sanctions list

Stay ahead of evolving compliance demands with smarter due diligence. Discover how Fenergo’s Client Lifecycle Management platform automates enhanced due diligence, reduces risk exposure, and ensures regulatory alignment—end to end.

Talk to a compliance expert today or request a demo now.

EDD Checklist FAQs 

What is required for enhanced due diligence?

EDD requires financial institutions to collect in-depth information on high-risk customers, including verified identification, source of funds and wealth, beneficial ownership details, and ongoing transaction monitoring. Documentation must be thorough and validated to meet regulatory compliance.

What are the 4 P's of due diligence?

The 4 P’s refer to People, Process, Performance, and Purpose. This framework guides institutions to evaluate who is involved (People), how systems and controls function (Process), past behavior and risk history (Performance), and the legitimacy of financial activity (Purpose).

What are the red flags for enhanced due diligence?

Key EDD red flags include:

  • Inconsistent or unverifiable customer information
  • Reluctance to disclose ownership or provide documentation
  • Unusual or high-risk transaction patterns
  • Links to sanctioned entities or adverse media

Which attributes would you use to identify a high risk customer for EDD monitoring?

High-risk customers are typically identified based on a combination of behavioral, geographic, and profile-related attributes. These may include being classified as a PEP, having ties to jurisdictions with high levels of financial crime or inadequate regulatory oversight, or operating through complex and opaque ownership structures such as shell companies.