How is risk determined in Enhanced Due Diligence (EDD)?

• A. Use CIP only
• B. Use CDD only
• C. Incorporating CIP and CDD into a Risk Model
• D. Use external data

Answer: (C)

In Enhanced Due Diligence, risk is determined by building a risk model that combines identity verification with a thorough understanding of the customer’s risk profile. Verifying who the customer is (CIP) establishes the baseline identity, while Customer Due Diligence (CDD) digs into factors like ownership, source of funds, expected transactions, business geography, and any sanctions or negative indicators. These inputs are fed into a formal risk scoring framework that weighs each factor to produce an overall risk rating and determine the level of ongoing scrutiny or enhanced checks needed. External data can augment the model, but the core decision comes from integrating CIP and CDD into that risk model.