How to Master Ongoing Due Diligence (ODD)

To master Ongoing Due Diligence (ODD), financial institutions must adopt a proactive, risk-based approach to continuously monitor customer activity and update risk profiles. This involves regular transaction monitoring, customer data refreshes, sanctions screening, and leveraging automation and AI for real-time insights. By integrating these processes into a dynamic compliance framework, organizations can ensure stronger AML adherence and minimize financial crime risks.

What is Ongoing Due Diligence (ODD)?

ODD is a continuous process undertaken by financial institutions to monitor their customers' activities and ensure compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. It involves regularly reviewing customer information, assessing risk, and identifying any changes in their behavior or circumstances that could indicate potential financial crime risks. This proactive approach helps maintain a current understanding of customer risk profiles.

How Does ODD Differ From Customer Due Diligence (CDD)?

While both ODD and Customer Due Diligence (CDD) are crucial for compliance, they serve distinct purposes. CDD is the initial process of verifying a customer's identity and assessing their risk at the onboarding stage. It's a snapshot in time. 

ODD, conversely, is an ongoing, dynamic process. It involves continuous monitoring of existing customer relationships to detect and prevent financial crime over time. Think of CDD as the foundational check, and ODD as the continuous surveillance that adapts as customer circumstances or regulatory landscapes evolve.

What Are the Processes Involved in an Ongoing Due Diligence Framework? 

An effective ongoing due diligence framework encompasses several key processes designed to maintain up-to-date customer risk profiles and detect suspicious activities. These processes often include:

• Transaction Monitoring: Continuously scrutinizing customer transactions for unusual patterns, large cash movements, or activities inconsistent with the customer's known profile. This is a critical element in identifying potential financial crime.

• Customer Data Refresh: Regularly updating customer information, including beneficial ownership verification, to ensure accuracy and completeness. This helps confirm that the institution still knows who its customer is and who ultimately controls the funds.

• Sanctions Screening: Ongoing screening of customers against global sanctions lists to ensure compliance with international regulations and prevent dealing with prohibited entities.

• Adverse Media Monitoring: Searching for negative news or public information related to customers that could indicate reputational or financial crime risks.

• Risk Reassessment: Periodically re-evaluating the customer's risk rating based on new information, changes in behavior, or updated risk parameters. This ensures that the level of due diligence applied remains appropriate.

When Should a Bank Apply Due Diligence? 

Banks and financial institutions should apply due diligence at multiple stages of the customer lifecycle. Initial CDD is mandatory during client onboarding. However, ongoing due diligence should be applied throughout the entire customer relationship. This continuous application is crucial:

• Periodically: Even for low-risk customers, periodic reviews are essential to ensure information remains current and risk assessments are still valid.

• Upon Trigger Events: Specific events should trigger an immediate due diligence review. These can include changes in customer ownership, significant increases in transaction volume, unusual transaction patterns, or changes in regulatory requirements.

• Based on Risk: A risk-based approach dictates that higher-risk customers require more frequent and intensive ongoing due diligence.

What Are the Levels of Due Diligence?

The levels of due diligence applied to a customer are typically determined by a risk-based approach. The primary levels include:

• Simplified Due Diligence (SDD): Applied to very low-risk customers or products where the risk of money laundering or terrorist financing is minimal. This involves fewer checks and less frequent monitoring.

• Standard CDD: The foundational level applied to most customers. It involves verifying identity, understanding the nature of the business relationship, and identifying beneficial owners.

• Enhanced Due Diligence (EDD): Applied to high-risk customers, relationships, or transactions where the potential for money laundering or terrorist financing is elevated. EDD involves more intensive scrutiny, deeper background checks, and more frequent monitoring. This could include source of wealth verification, more extensive adverse media searches, and greater scrutiny of transaction patterns.

Ongoing Due Diligence FAQs

How does a risk-based approach (RBA) apply to ongoing due diligence? 

A risk-based approach is fundamental to ODD, allowing institutions to efficiently allocate resources by focusing intensive scrutiny on higher-risk customers and transactions. This involves categorizing customers by factors like location and business activities, leading to more frequent ODD reviews for higher-risk clients.

What role does automation and AI play in enhancing ongoing due diligence? 

Automation and AI are transformative, processing vast data efficiently, identifying patterns, and reducing manual errors. AI-powered Client Lifecycle Management (CLM) flags suspicious activities, while RPA automates routine tasks, leading to faster, more accurate, and cost-effective ODD. This frees compliance professionals for complex investigations. 

How can financial institutions move from periodic KYC reviews to a more "perpetual KYC" or continuous monitoring model?

Moving to perpetual KYC involves leveraging technology and integrating real-time data streams. This shift requires automated data feeds, real-time transaction monitoring, centralized data management for a comprehensive customer view, and dynamic risk scoring. This approach enhances financial crime detection and maintains accurate customer risk views.

How Fenergo Supports Ongoing Due Diligence

Fenergo empowers financial institutions to master Ongoing Due Diligence through its intelligent CLM and Know Your Customer (KYC) solutions. By automating data collection, transaction monitoring, risk assessments, and perpetual KYC processes, Fenergo reduces compliance costs, improves accuracy, and accelerates onboarding and remediation. Its AI-powered platform enables dynamic risk scoring and real-time insights, ensuring institutions stay ahead of regulatory changes and financial crime threats with a scalable, future-ready approach.