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Enhanced Due Diligence (EDD) Training
In-depth training on enhanced due diligence procedures for high-risk clients as required by FICA Section 21A. Learn when EDD is required, what additional measures to take, and best practices.
In This Training
1What is Enhanced Due Diligence?
Enhanced Due Diligence (EDD) is a set of additional measures taken to mitigate higher risks associated with certain clients or transactions. It is a crucial part of the broader Customer Due Diligence (CDD) process and is mandated under FICA Section 21A.
Legal Reference
EDD requirements are set out in Section 21A of FICA, which requires accountable institutions to apply additional measures when dealing with higher-risk clients, including Politically Exposed Persons (PEPs) and clients from high-risk jurisdictions.
Key Aspects of EDD
Additional Verification
Conducting more thorough verification of client information using multiple sources
Source of Funds
Understanding and documenting the origin of the client's funds and wealth
Senior Management Approval
Obtaining approval from senior management for high-risk client relationships
Enhanced Monitoring
Implementing more frequent and detailed monitoring of transactions
2When is EDD Required?
EDD is triggered when your risk assessment identifies higher-risk factors. Under FICA, EDD must be applied in the following situations:
Politically Exposed Persons (PEPs)
Individuals who hold or have held prominent public positions, and their family members and close associates. This includes foreign PEPs, domestic PEPs, and international organization PEPs.
High-Risk Jurisdictions
Clients from countries identified by the FATF or FIC as having strategic AML/CFT deficiencies, or countries subject to sanctions.
Complex Corporate Structures
Legal entities with complex ownership structures, multiple layers, or where beneficial ownership is difficult to determine.
Unusual Transaction Patterns
Transactions that are unusually large, complex, have no apparent economic purpose, or deviate significantly from expected patterns.
Doubts About Information
When there are doubts about the veracity or adequacy of previously obtained customer identification data.
Important Note
Failure to apply EDD when required can result in significant penalties under FICA Sections 51-52, including administrative sanctions up to R50 million for legal persons and potential criminal prosecution.
3EDD Procedures
When EDD is required, the following additional measures must be applied beyond standard CDD:
Obtain Senior Management Approval
Document approval from a senior manager for establishing or continuing the business relationship.
Establish Source of Funds
Obtain documentation proving the legitimate origin of funds used in the business relationship.
Establish Source of Wealth
Understand and document how the client acquired their overall wealth.
Additional Verification
Verify client information through additional independent sources.
Enhanced Monitoring
Implement more frequent review of transactions and client information.
Document Rationale
Record the reasons for entering into or continuing the business relationship.
4Source of Funds Verification
Source of funds verification is a critical component of EDD. It involves understanding and documenting where the client's money comes from.
Acceptable Documentation
Employment Income
- • Employment contracts
- • Payslips (3-6 months)
- • Bank statements showing salary deposits
- • Tax returns (IRP5/IT3a)
Business Income
- • Audited financial statements
- • Business bank statements
- • Tax clearance certificates
- • Sale agreements or contracts
Investments
- • Investment statements
- • Dividend vouchers
- • Property sale agreements
- • Share certificates
Inheritance/Gifts
- • Letters of executorship
- • Estate accounts
- • Gift declarations
- • Donor documentation
Best Practice
Always obtain original documents where possible, and keep copies on file. Cross-reference the stated source of funds with the client's profile, occupation, and expected transaction patterns. Any inconsistencies should be investigated and documented.
5Enhanced Ongoing Monitoring
For high-risk clients subject to EDD, ongoing monitoring must be more frequent and detailed than for standard clients.
Transaction Monitoring
Review transactions more frequently, looking for unusual patterns, large transactions, or deviations from expected behavior.
Periodic Reviews
Conduct more frequent reviews of client information (e.g., annually for high-risk vs. every 3 years for low-risk).
News Monitoring
Monitor adverse media for high-risk clients, including news about legal issues, sanctions, or reputational concerns.
PEP Status Changes
Monitor for changes in PEP status, as individuals may become PEPs or their PEP status may change.
Frequently Asked Questions
What is Enhanced Due Diligence (EDD)?
Enhanced Due Diligence (EDD) is a set of additional verification measures required under FICA Section 21A for high-risk clients. It involves more thorough verification, source of funds checks, senior management approval, and enhanced ongoing monitoring.
When is EDD required under FICA?
EDD is required for Politically Exposed Persons (PEPs), clients from high-risk jurisdictions, complex corporate structures, unusual transaction patterns, and any other situations where risk assessment indicates higher risk.
What is the difference between CDD and EDD?
CDD (Customer Due Diligence) is the standard process of identifying and verifying clients. EDD goes further with additional verification, source of funds checks, senior management approval, and enhanced monitoring for higher-risk clients.
Related Resources
Automate Your EDD Process
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