Simplified due diligence

Simplified due diligence, or SDD, is a reduced level of customer due diligence used when money-laundering or terrorist-financing risk is demonstrably low. It permits fewer or less intensive verification measures, but does not remove the duty to monitor risk.

Simplified due diligence is an anti-money-laundering and counter-terrorist-financing approach. A bank, payment firm, crypto-asset service provider, or other regulated business may apply it only after assessing that a customer, product, service, or transaction presents low risk.

SDD is most explicitly defined in EU anti-money-laundering rules. In the United States, financial institutions generally use risk-based customer due diligence under Bank Secrecy Act requirements; the label SDD is less consistently used, but the underlying idea of proportionate controls is familiar.

What it changes

Under SDD, a firm may adjust the timing, depth, or frequency of checks compared with standard customer due diligence. The firm must still identify the customer where required, understand the purpose of the relationship as appropriate, screen for relevant sanctions or other legal restrictions, and conduct ongoing monitoring.

• Using reliable public or existing information to verify a customer, where law and risk permit
• Performing fewer periodic reviews for stable, low-risk relationships
• Applying less intensive checks on beneficial owners, the individuals who ultimately own or control a legal entity, where permitted
• Setting monitoring that is proportionate to expected low-risk activity

When SDD is not appropriate

A firm should not use SDD simply because a customer is well known or because a transaction is small. It must consider risk factors including geography, ownership structure, delivery channel, transaction patterns, and the nature of the product.

SDD is generally inappropriate where enhanced due diligence is required or risk is higher, such as in relationships involving politically exposed persons, high-risk third countries under applicable EU rules, unusual activity, or credible indications of sanctions evasion, fraud, money laundering, or terrorist financing.

Key distinction

SDD is a calibrated form of due diligence, not an exemption from compliance. If new information or suspicious activity raises risk, the firm must reassess the relationship, apply stronger measures where needed, and consider whether a suspicious activity report or equivalent filing is required.

Go deeper: Simplified Due Diligence: When Lighter Checks Are Allowed and Enhanced Due Diligence: What Triggers It and What It Involves.