A less extensive form of Customer Due Diligence (CDD) that financial institutions may apply to low-risk customers or transactions. SDD is part of the risk-based approach to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, which allows financial institutions to allocate their resources more efficiently by focusing on higher-risk customers and transactions.
Basic Requirements
Under SDD, financial institutions may collect and verify less information about the customer compared to standard CDD. This may include:
- Basic information: Obtaining name, address, and date of birth.
- Identity verification: Using fewer or less reliable sources of information.
- Transaction monitoring: Conducting less frequent or less intensive monitoring.
Applicable Situations
Financial institutions may apply SDD in situations where the risk of money laundering or terrorist financing is low, such as:
- Small transactions: Involving small amounts of money.
- Established customers: With a proven track record of legitimate business activities.
- Regulated entities: Such as other financial institutions or government agencies.
- Low-risk products: With inherent features that limit their exposure to money laundering or terrorist financing risks.
Compliance and Monitoring
Financial institutions must still conduct ongoing monitoring of customers subject to SDD and be prepared to apply standard CDD or Enhanced Due Diligence (EDD) measures if the customer's risk profile changes or suspicious activities are detected. The specific criteria for applying SDD may vary depending on the jurisdiction and the financial institution's internal policies and risk assessment. Financial institutions must ensure that their SDD procedures comply with applicable laws and regulations and are appropriate for the level of risk associated with the customer or transaction.