Simplified Due Diligence SDD

Only when the business relationship or transaction presents a low degree of risk. Article 33(1) of the Anti-Money Laundering Regulation (AMLR) makes that the condition, and the firm reaches it by taking into account the risk factors in Annexes II and III. The conclusion comes from the individual risk analysis that Article 20(2) requires for every client. The regulation says a firm "may" apply simplified measures, so it is never obliged to.

The decision has to be prepared in advance. Under Article 33(2), the firm's internal procedures must set out the specific simplified measures for each type of lower-risk customer. Where the firm takes additional lower-risk factors into account, it must document that decision. The measures have to be proportionate to the nature and size of the business and to the specific elements of lower risk identified (Article 33(1)).

Annex II of the AMLR lists them in three groups. The customer factors are public companies listed on a stock exchange and subject to disclosure requirements that ensure adequate transparency of beneficial ownership, public administrations or enterprises, and customers resident in a lower-risk geographical area.

The product factors include life insurance policies with a low premium, pension insurance policies with no early surrender option that cannot be used as collateral, and employee pension schemes funded by wage deductions whose rules do not permit assignment of a member's interest. They also include products limited in scope to support financial inclusion, and products where purse limits or transparency of ownership manage the risk, such as certain types of electronic money.

The geographical factors are registration, establishment or residence in a member state, or in a third country with effective anti-money laundering systems. A third country also counts if credible sources identify it as having a low level of corruption or other criminal activity, or as effectively implementing requirements consistent with the FATF Recommendations.

The list is not exhaustive, and it describes potentially lower risk. A factor from Annex II is weighed against any higher-risk factor from Annex III before the firm reaches its conclusion.

Article 33(1) names four reductions. The firm may verify the identity of the customer and the beneficial owner after the relationship is established. It may update customer identification less often. It may collect less information on the purpose and intended nature of the relationship, or infer it from the type of transactions or relationship. It may reduce the frequency or degree of scrutiny of the customer's transactions. A fifth point allows any other measure that the EU authority AMLA identifies.

The detail is left to technical standards. Article 28 required AMLA to submit to the Commission, by 10 July 2026, draft standards on the types of simplified measures and on minimum requirements in situations of lower risk. Such standards bind firms only once the Commission adopts them. The fixed list of identification data in Article 22(1) is itself written with an exception for lower-risk cases.

The firm may start the relationship first and verify identity afterwards, but no later than 60 days after the relationship is established. Article 33(1)(a) allows this only where the specific lower risk identified justifies the postponement. The normal rule in Article 23(1) is verification before the relationship starts.

The firm needs controls for the gap. Article 33(3) requires risk management procedures on the conditions under which it may provide services or perform transactions before verification takes place. The procedures may limit the amount, number or types of transactions. They may instead monitor transactions against the expected norms for that relationship.

Verification is postponed, not waived. The point speaks only of verifying, so the customer and the beneficial owner are still identified at the start. Article 33 does not say what follows if verification is still missing after 60 days. A firm that is unable to verify identity cannot complete the measures in Article 20(1). In that case Article 21(1) requires it to carry out no transaction, end the relationship and consider a report to the financial intelligence unit. Article 21(2) sets that rule aside for lawyers, notaries, other independent legal professionals, auditors, external accountants and tax advisors while they ascertain a client's legal position or represent the client in proceedings.

Monitoring can never be dropped. Article 33(1) requires the firm to carry out sufficient monitoring of the transactions and the relationship to detect unusual or suspicious transactions. Recital 78 adds that simplified due diligence is not an exemption from customer due diligence or an absence of it. It is a reduced set of scrutiny measures that should still address every component of the standard procedure. Article 33(1) also names no reduction for the checks on targeted financial sanctions or on politically exposed persons.

Suspicion overrides everything. Under Article 19(1), customer due diligence applies whenever there is a suspicion of money laundering or terrorist financing, regardless of any derogation, exemption or threshold.

A firm must stop applying simplified measures in the five situations listed in Article 33(5). The first is doubt about the information the customer or beneficial owner gave at identification, or an inconsistency in it. The second is that the lower-risk factors are no longer present. The third is that monitoring and the information collected exclude a lower-risk scenario. The fourth is a suspicion of money laundering or terrorist financing. The fifth is a suspicion that the customer, or the person acting for the customer, is trying to circumvent or evade targeted financial sanctions.

Article 33(4) also requires the firm to verify on a regular basis that the conditions for simplified measures still exist. How often depends on the size of the business and the risks of the relationship. Once simplified measures stop, the standard measures apply, or enhanced ones where the firm has identified a higher risk.