Simplified Due Diligence (SDD) is a reduced level of customer checks that may be applied when a customer or product is assessed as posing a genuinely lower risk of money laundering or terrorist financing. For example, basic payment accounts, certain low-value insurance products, or customers who are themselves regulated financial institutions within the EU may be eligible for SDD. Under SDD, the same core CDD obligations apply, but they can be carried out in a less intensive way — for instance, by verifying identity after the relationship begins rather than before.
It is critical to understand that SDD is not an exemption from CDD — it simply allows a risk-proportionate approach. The EU’s 4th Anti-Money Laundering Directive removed the previous automatic categories of SDD eligibility and replaced them with a requirement for businesses to actually assess the risk themselves. If at any point suspicious activity is detected, the business must revert to standard or enhanced measures, regardless of the customer’s original risk rating.
While SDD sounds like an easy way to get rid of some CDD requests, it is advisable to use this procedure very cautiously and after a thorough risk assessment.
