Simplified Due Diligence (SDD) refers to reduced verification requirements applied to demonstrably lower-risk customers or transactions where the risk of money laundering or terrorist financing is minimal.
When SDD May Apply
- Regulated financial institutions: Already subject to oversight
- Publicly traded companies: Transparent ownership
- Government entities: Public accountability
- Long-standing customers: Clean history and known risk profile
- Low-risk products: Simple, standardized services
SDD Is Not "No Due Diligence"
Even with SDD, organizations must still:
- Identify the customer
- Monitor for suspicious activity
- Be prepared to escalate to standard CDD or EDD if risk indicators emerge
SDD reduces the depth of verification, not the requirement to verify.
Documentation Requirements
The risk-based approach requires documented justification for applying SDD:
- Why does this customer qualify as low-risk?
- What reduced measures are being applied?
- What triggers would require escalation?
SDD in the Due Diligence Spectrum
SDD
- Risk: Low
- Measures: Streamlined verification, standard monitoring
Standard CDD
- Risk: Medium
- Measures: Full verification, regular monitoring
EDD
- Risk: High
- Measures: Enhanced verification, intensive monitoring
Related: CDD | EDD | Risk-Based Approach
