Simplified Due Diligence (SDD)

🔹 Definition

Simplified Due Diligence (SDD) refers to a reduced level of customer due diligence that can be applied when the money laundering or terrorist financing risk is assessed as low. Under the Risk-Based Approach (RBA) endorsed by FATF and adopted by most regulators, financial institutions and corporate service providers may simplify identification, verification, and monitoring requirements for certain low-risk customers, products, or transactions.

SDD must be justified by a documented risk assessment and is subject to regulatory approval or limitations, depending on the jurisdiction.

🔹 Frequently Asked Questions (FAQs)

Q1: When is SDD applicable?

• Low-risk customers: E.g., salaried individuals with stable income, low transaction volume
• Low-risk products: E.g., basic bank accounts with usage restrictions
• Government entities, listed companies, or regulated financial institutions
• Transactions below threshold limits where no suspicious activity is detected
• Only where no suspicion of money laundering or terrorist financing exists

Q2: What does SDD typically involve?

• Reduced KYC requirements: May not require immediate documentary verification
• Less frequent reviews or ongoing monitoring
• Fewer data points collected during onboarding
• May allow delayed verification under controlled conditions

Q3: What are the benefits of SDD?

• Improves customer onboarding speed and user experience
• Frees up compliance resources to focus on higher-risk cases
• Reduces operational burden for low-risk, high-volume retail services
• Encourages financial inclusion, especially for underserved populations

Q4: What are the risks of using SDD improperly?

• May expose the institution to regulatory breaches if misapplied
• Increases risk of undetected financial crime if risk assessments are flawed
• Could lead to enforcement actions or fines from AML/CFT regulators
• Requires strong governance, documentation, and auditability

Q5: Is SDD allowed in Singapore?
Yes, under specific conditions:

• MAS AML/CFT Notices allow SDD for specific low-risk scenarios
• Institutions must conduct a risk assessment and justify the application of SDD
• SDD must not apply where there are suspicions or red flags
• Regular risk model reviews are required to ensure continued appropriateness