Simplified due diligence
SDDAlso called simplified CDD, reduced due diligence
Simplified due diligence is a lighter form of customer due diligence that firms may apply when a customer, product or transaction presents a low risk of money laundering or terrorist financing. Firms still identify the customer and monitor the relationship, but they can collect less information or verify it later.
How it works
A firm reaches simplified due diligence through its own risk assessment. It looks at customer type, product, delivery channel and geography, then records why the risk is low. Typical cases include listed companies, public authorities and certain low-value products. The firm may reduce how often it updates records or accept fewer verification documents. It cannot skip identification or ongoing monitoring altogether.
The concession matters because it frees compliance resources for higher-risk customers. Regulators treat it as a judgement, not an exemption. Firms must stop applying it once suspicion arises or the risk picture changes. Under the EU AML Regulation, the conditions for simplified measures become harmonised across member states from July 2027, ending national variations in how far firms can scale back checks.
The rules
Allows simplified customer due diligence where the firm determines a relationship or transaction presents a low risk, taking its risk assessment into account.
Banks, payment firms and other relevant personsAdded due diligence measures for pooled accounts provided from 30 June 2026, which firms may adjust when applying simplified due diligence under regulation 37.
Relevant persons under the MLRsSets harmonised simplified due diligence measures for low-risk relationships and requires firms to stop applying them where suspicion or doubt arises.
Obliged entities in the EUPermits simplified CDD measures where lower risks are identified, but never where money laundering or terrorist financing is suspected.
FATF member jurisdictionsCommon questions
Is simplified due diligence an exemption from KYC?
No. Firms still identify the customer and carry out ongoing monitoring. Simplified due diligence only allows a reduced level of information or verification where the firm has assessed and documented a low risk of money laundering or terrorist financing.
Which customers typically qualify for simplified due diligence?
Common examples include public authorities, companies listed on regulated markets and some low-value financial products. Qualification depends on the firm's own risk assessment and the risk factors set out in national rules, not on customer type alone.
When must a firm stop applying simplified due diligence?
Firms must stop when they suspect money laundering or terrorist financing, when they doubt the accuracy of information held, or when the risk assessment no longer supports a low-risk rating. The relationship then moves to standard or enhanced checks.
How does the EU AML Regulation change simplified due diligence?
From 10 July 2027 the AML Regulation applies directly in every member state. It sets common rules on what simplified measures firms may apply, replacing the different national approaches that existed under earlier directives.
