Enhanced Due Diligence (EDD)
A deeper, more thorough compliance review applied to higher-risk customers or transactions, going beyond a financial institution's standard identity verification and monitoring.
Enhanced due diligence is a deeper, more thorough compliance review that financial institutions, including crypto exchanges, apply to customers or transactions flagged as carrying elevated risk — for example, a customer with ties to a high-risk jurisdiction, unusually large or complex transaction patterns, or a politically exposed person. It goes well beyond an institution's standard identity-verification and transaction-monitoring processes, often involving additional documentation requests, source-of-funds verification, and closer, more frequent ongoing review.
EDD is a risk-based component of a broader anti-money-laundering program, applied selectively to specific higher-risk customers or transaction patterns rather than uniformly to every customer, which lets institutions focus their most intensive compliance resources on the relationships and activity that genuinely warrant closer scrutiny. A transaction or customer relationship flagged by Know Your Transaction (see Kaavon's "Know Your Transaction (KYT)" glossary definition) monitoring tools for unusual patterns commonly triggers an escalation into enhanced due diligence review.
Examples
- A crypto exchange customer whose transaction monitoring flags unusually large or complex activity might be escalated into enhanced due diligence, requiring additional source-of-funds documentation.
- Enhanced due diligence is applied selectively to higher-risk customers and transactions, rather than uniformly across an exchange's entire customer base.