For financial institutions operating in an increasingly complex regulatory environment, safety, security and compliance with anti-money laundering (AML) obligations remain non-negotiable.
According to SmartSearch, firms are required to carry out AML checks on every customer to protect both their clients and their own businesses from financial crime and terrorist financing. However, not all customers present the same level of risk, which is why a risk-based approach to due diligence has become central to modern compliance frameworks.
One important element of this approach is Simplified Due Diligence (SDD). While often misunderstood as “light touch” compliance, SDD is still a regulated process that allows organisations to apply proportionate checks where customers are assessed as low risk. By adjusting the depth of investigations, firms can remain compliant while focusing greater resources on higher-risk relationships.
Simplified Due Diligence is a customer verification procedure that permits reduced due diligence checks where there is a demonstrably low risk of money laundering or financial terrorism. Core AML requirements still apply, but the scope and frequency of checks are scaled back. This allows compliance teams to allocate time, budget and expertise more efficiently without undermining regulatory standards.
Risk classification plays a central role in determining whether SDD can be applied. Factors typically assessed include who the customer is, the jurisdiction in which they operate, the products or services they use, and their source of funds. If these indicators collectively suggest a low risk profile, SDD may be used instead of standard Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD).
SDD is generally applied after an initial risk assessment has been completed. Common low-risk scenarios include publicly listed companies, government or state-owned bodies, customers conducting low-value or infrequent transactions, regulated financial institutions with established AML frameworks, and customers based in countries with strong anti-corruption regimes and robust governance. Importantly, SDD should only be applied where these criteria are clearly met and documented.
The difference between simplified, standard and enhanced due diligence lies in the depth of scrutiny. SDD involves standard identification procedures with reduced ongoing monitoring, typically for regulated institutions or public bodies. CDD requires full identity verification and regular monitoring and is used for most retail customers and small businesses. EDD applies the most rigorous checks, including source of funds and source of wealth verification, PEP screening and detailed risk assessments, and is reserved for high-risk customers or jurisdictions.
Several core processes underpin an effective Simplified Due Diligence checklist. Reduced identity verification allows firms to rely on a single trusted form of identification, such as a government-issued document, or previously verified customer data already held on file. Automated identity verification tools can further minimise the need for manual intervention.
Beneficial ownership checks are also simplified under SDD. While beneficial owners must still be identified, verification can often be completed using company registry data, regulatory databases or confirmation that a business is publicly listed. Ongoing monitoring remains mandatory but can be less intensive, with periodic reviews replacing continuous scrutiny, supported by automated alerts for unusual activity.
Streamlined reporting and record keeping are essential to maintaining compliance. Digital systems that centralise customer data and automatically update records reduce administrative burden and support more effective AML monitoring.
Despite its lighter touch, Simplified Due Diligence is subject to clear regulatory expectations. Firms must document risk assessments, maintain ongoing monitoring, have clear escalation and suspicious activity reporting processes, and continue to meet all prevailing AML obligations.
When implemented correctly, SDD delivers tangible benefits. It enables faster onboarding, improves customer experience for low-risk clients, and supports a truly risk-based compliance strategy that prioritises resources where they are needed most. Best practice includes automated risk assessments, regular staff training, and ongoing reviews of SDD frameworks to reflect evolving regulatory and technological developments.
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