In today’s regulatory landscape, conducting ongoing due diligence is the best practice for preventing fraud and ensuring compliance. Businesses must go beyond verifying customers at the onboarding phase and continuously monitor their activities to ensure compliance and mitigate risks for due diligence purposes. 70–90% of mergers and acquisitions fail when due diligence is inadequate, underscoring its critical role in risk mitigation
This guide covers the definition of ongoing due diligence, how to conduct ongoing due diligence effectively, and the step-by-step process businesses should follow for due diligence purposes.
Understanding Ongoing Due Diligence
Ongoing Due Diligence (ODD) is a continuous monitoring process that ensures businesses maintain compliance with regulatory requirements and mitigate financial crime risks. Unlike due diligence, which is conducted at the onboarding stage, ODD involves periodic reviews and ongoing monitoring of customer activities, transactions, and risk profiles to detect suspicious behavior and prevent fraud.
Case Study: In December 2021, the UK's Financial Conduct Authority (FCA) imposed a £63.9 million fine on HSBC for significant lapses in its anti-money laundering (AML) processes. The FCA's investigation revealed that between March 31, 2010, and March 31, 2018, HSBC's transaction monitoring systems exhibited serious weaknesses, undermining the bank's ability to detect and prevent fraudulent activities effectively.
This case highlights why ongoing due diligence supported by strong AML/CFT controls is essential for financial institutions. Without continuous monitoring and robust compliance systems, institutions risk exposure to financial crime and regulatory penalties.
Ongoing Due Diligence in Action
Here's how ongoing due diligence works to detect suspicious activity and maintain compliance.
Customer Risk Reassessment: The bank re-evaluates the customer’s risk level based on the new transaction patterns and determines that the risk level has increased from medium to high.
Enhanced Due Diligence (EDD): The compliance team requests additional documentation, including the source of funds and business justification for these transactions.
Transaction Monitoring & Reporting: The unusual transactions are flagged and reported to Nigeria’s regulatory authorities for further investigation. Regulatory bodies, such as the Financial Action Task Force (FATF) and local financial authorities, require you to follow due diligence in conducting ongoing due diligence checks for anti-money laundering (AML) and other fraudulent activities.
How Ongoing Due Diligence Benefits Your Business
Implementing an ODD process provides numerous advantages, which include
1. Fraud Prevention & Risk Mitigation
Ongoing monitoring helps detect anomalies and suspicious activities, reducing the risk of financial crime, including money laundering and terrorist financing.
2. Regulatory Compliance
ODD helps businesses comply with evolving regulations, avoid legal penalties, and strengthen their reputation in the industry.
3. Enhanced Customer Relationships
By maintaining accurate and up-to-date customer records, businesses can personalize services, identify potential risks, and foster long-term trust.
4. Operational Efficiency
Automating ODD processes with AI-driven solutions reduces manual efforts, streamlines compliance workflows, and enhances overall efficiency.
Steps to Take for Ongoing Due Diligence
The ODD process involves continuous monitoring and updating of customer information. Here are the seven steps of due diligence:
1. Customer Risk Profiling
Assigning a risk rating (low, medium, or high) based on factors such as transaction history, geographic location, and business nature.
2. Transaction Monitoring
monitoring customer transactions for suspicious behaviors to identify unusual patterns or high-risk behaviors that may indicate fraud or money laundering.
3. Periodic Reviews
Reassessing customer information at regular intervals to ensure the risk level of the customer; that way, businesses can take urgent actions quickly.
4. Enhanced Due Diligence (EDD) for High-Risk Clients
For high-risk customers, businesses must conduct deeper investigations, including verifying sources of funds and performing background checks.
5. Regulatory Reporting
Flagging and reporting suspicious activities to relevant authorities to ensure compliance with AML regulations.
6. Customer Identification and Verification
Collecting KYC documents such as passports, national IDs, business registrations, and proofs of address and verifying them across government databases.
7. Sanctions and PEP Screening
Checking individuals and businesses against global watchlists, sanctions lists, and politically exposed persons (PEPs).
Ongoing Due Diligence Checklist
To maintain an effective ODD framework, businesses should follow this checklist:
1. Verify and update customer information regularly
2. Monitor transactions for unusual activities
3. Conduct periodic risk assessments
4. Apply Enhanced Due Diligence (EDD) for high-risk clients
5. Ensure compliance with local and global AML regulations
6. Implement AI automated tools for continuous monitoring
7. Train employees on evolving compliance requirements
8. Maintain accurate records for regulatory audits
FAQs
1. What are the 3 Ps of Due Diligence?
The 3 Ps of due diligence are
- People: Assessing individuals involved in a business relationship.
- Process: Ensuring robust due diligence frameworks and policies are in place.
- Performance: Continuously evaluating compliance effectiveness and risk management strategies.
2. What is Ongoing Due Diligence in KYC?
Ongoing due diligence in KYC refers to the continuous monitoring of customers after onboarding to detect any changes in risk profiles, unusual transactions, or suspicious behavior.
3. What is due diligence in compliance?
Due diligence in compliance refers to the process of thoroughly assessing and monitoring individuals, businesses, and transactions to ensure adherence to regulatory requirements and prevent financial crimes. It involves verifying customer identities, assessing risk levels, conducting ongoing monitoring, and ensuring that businesses operate within legal and ethical boundaries.
4. What is the Difference Between KYC and Ongoing Due Diligence?
KYC (Know Your Customer) is the initial identification and verification process conducted when onboarding a new customer. Ongoing Due Diligence (ODD) is a continuous review of customer activities to ensure compliance and identify potential risks over time.
5. What are due diligence documents?
Due diligence documents refer to the essential records and reports collected and analyzed during the due diligence process to assess the legitimacy, risk level, and compliance status of individuals or businesses. This document includes proof of payment, identity verification, financial records, etc.
Final Thoughts
Ongoing due diligence is a crucial component of a comprehensive compliance strategy. By implementing effective ODD measures, businesses can mitigate risks, ensure regulatory adherence, and build trust with customers. Leveraging automated compliance solutions can further enhance efficiency and accuracy, making fraud prevention more proactive and robust.
At Youverify, we empower businesses with intelligent, automated tools that streamline ongoing due diligence, prevent suspicious activity, and ensure regulatory alignment across jurisdictions. Our platform unifies customer monitoring, risk scoring, and real-time verification, eliminating manual overhead, fraud, and non-compliance. To get started, BOOK A DEMO TODAY.