Simplified Due Diligence: When Can UK Firms Use It?
In brief: Simplified due diligence is a lighter CDD approach that may be used only where the firm has assessed the relationship or transaction as low risk and can explain why.
Key points
- SDD is not a shortcut for skipping AML checks.
- The firm must still understand the client, ownership, purpose, and risk.
- If the risk changes, the firm should move back to standard or enhanced due diligence.
What is simplified due diligence?
Simplified due diligence, often shortened to SDD, is a lighter form of customer due diligence for lower-risk situations. It is not permission to ignore CDD. The firm still needs to understand who the client is, why the work is being done, who owns or controls the client, and why the relationship is low risk.
The UK Money Laundering Regulations require a risk-based approach to CDD. The legislation is available on legislation.gov.uk: Money Laundering Regulations 2017.
When SDD may be appropriate
SDD may be considered where the overall risk is genuinely low. For example, a familiar low-risk client, a simple service, transparent ownership, UK-only activity, low-risk geography, and no unusual source-of-funds concerns may support a lighter approach.
The key word is "overall". One low-risk factor does not make the whole relationship low risk.
When not to use SDD
Avoid SDD where there are indicators such as:
- Complex or unclear ownership.
- PEP exposure.
- Sanctions or adverse media concerns.
- High-risk jurisdictions.
- Unusual source of funds or source of wealth.
- Client pressure to avoid checks.
- A transaction that does not match the client's profile.
In those cases, standard CDD or enhanced due diligence is likely to be more appropriate.
What to record
An SDD decision should be easy to review later. Keep:
| Record | Why it matters |
|---|---|
| Client identity and profile | Shows the firm understood who it was acting for. |
| Ownership and control notes | Prevents hidden-control issues being missed. |
| Low-risk rationale | Explains why SDD was proportionate. |
| Screening result | Shows sanctions/PEP/adverse media risk was considered where relevant. |
| Review trigger | Shows when the firm will reassess if facts change. |
Common mistake
The most common mistake is treating SDD as "no due diligence". A better way to think about it: SDD changes the depth of evidence, not the need for a defensible AML decision.
Official reference
This guide is general information and is not legal advice.