How Ongoing Due Diligence Protects Businesses Beyond Onboarding

Given the interconnected nature of today’s economy, effective due diligence requires continuous oversight rather than a one-time focus on onboarding. Signing a contract or validating a business upon entry will always provide a snapshot view. In a business, risk is dynamic and evolving. A customer deemed legitimate during initial due diligence may later become subject to sanctions, engage in criminal activity, or appear in adverse media. This reality is steering organizations toward more advanced ongoing due diligence. 

This expectation reverberates through regulatory channels. The Financial Action Task Force (FATF) has emphasized the importance of continuous monitoring of counterparties, rather than relying solely on one-off assessments. The consequences of failure to comply are severe. Regulatory penalties aside, reputational harm and disruption of the supply chain may reverse evidence of work done over many years.

What is Ongoing Due Diligence?

Ongoing due diligence (ODD) can be defined as a procedure within the larger body of compliance procedures through which businesses carry out continual evaluation of their clients and operations to gain an insight into the risk factors that may include money laundering and the funding of terrorism. While KYC checks only occur at the very beginning of a business relationship with a customer, this is a much more elaborate process because it monitors account activity for potential new risks on an ongoing basis, including real-time assessment during account activity and post-onboarding. 

Continuous due diligence provides compliance teams with tools to identify AML red flags and maintain accurate customer risk profiles, facilitating financial institutions’ implementation of the Risk-Based Approach (RBA). Thus, Ongoing Due Diligence ensures that the client’s risk profile, source of funds, and overall activities align with the company’s risk levels internally. In addition, ongoing due diligence helps identify inconsistencies in user behavior so that larger eviction issues can be nipped in the bud much earlier.

From One-Time Verification to Continuous Vigilance

Traditional onboarding serves as an entry checkpoint. Documents are gathered, beneficial owners are identified, and risk scores are assigned. While this may comply with the requirements at the commencement of a business relationship, it may also create a vacuum in risk perception, as the world has become more dynamic than traditional static checks allow.

The research bears the risk out: 51 percent of organizations reported fraud incidents in the last two years in PwC’s Global Economic Crime and Fraud Survey, with third-party relationships typically at the forefront of the violation. In many cases, problems appeared long after the onboarding.

Ongoing due diligence closes this gap. Instead of a static snapshot, it provides a dynamic, evolving risk profile.. By monitoring sanction lists, ownership structure developments, and adverse media in real time, organizations can prepare for and mitigate threats before they fully develop.

Why Ongoing Due Diligence Matters?

Ongoing due diligence is far more than compliance. It’s about ingesting business continuity and maintaining faith in essential partnerships.

• Sanctions exposure: A previously onboarded entity might appear on an international watchlist months later.
• Changes in ownership: A shift in ultimate beneficial ownership can connect a partner to politically exposed or high-risk individuals..
• Reputational threats: Negative reporting can inflict reputational damage even before the actual case gets pursued.
• Regulatory compliance: Regulatory authorities are increasingly demanding firms to demonstrate continued supervision as part of their compliance framework.

In the past, a lack of ongoing monitoring has been found to be a failure in AML compliance for many top-tier banks. One of the most iconic examples is the Danske Bank Estonia scandal, where billions of euros reached its branch through suspicious transactions over several years.

Initial onboarding checks may have occurred, but ongoing monitoring was absent, such that systemic risks went undetected. The final consequence became one of Europe’s largest financial crime cases with record regulatory penalties and long-lasting reputational damage.

The lesson is clear: knowing your partners once is not enough. Businesses must keep knowing them as conditions change.

Managing Evolving Third-Party Risk

One of the countless applications put into action for continuous due diligence is vendor screening. They furnish the goods, services, and infrastructure upon which a business’s day-to-day operations serenely rely. But they also have an ever-present tendency to be a source of obscure risks.

The vendor may be a trusted partner when arm’s-length transactions commence (during due diligence), but soon finds itself entangled with lawsuits, bankruptcy, or regulatory violations. An even worse scenario is one in which an ownership change brings them within the ambit of a sanctioned entity or politically exposed person. The organization’s continuous monitoring lapses into negligence of these risks.

Then there are the additional challenges posed by global supply chains. The greater the geographic diversity of a vendor’s network, the more difficult it is to monitor risks that change over time. This is the reason for the need for continuous vendor screening: visibility frees operations from potential liabilities. It is not about suspicion. Trust is built upon verifiable intelligence that is updated continuously.

The Strategic Value of Continuous Due Diligence

The reduction in operational importance is usually weighed against the cost of continuous monitoring by company executives. However, the gain is obvious and quantifiable: 

• Inability to Assess Risks Timely: Failure to identify vendor or partner risks early can expose businesses to operational disruptions and financial losses.
  
• Non-Compliance: Weak oversight of due diligence obligations can lead to regulatory breaches and undermine governance standards.
  
• Penalties and Reputational Damage: Regulatory fines, balance sheet impacts, and long-term reputational harm often follow when risks are left unchecked.
• Competitive advantage: Businesses with good risk management sell themselves as better prospective partners, allowing them to expand in the global marketplace. 

According to the study by McKinsey, the companies with higher risk management capabilities increased long-term shareholder returns than their counterparts. This means that the ongoing due diligence is not simply for a defensive purpose; it enables the enterprise to maintain further growth.

Building a Robust Ongoing Due Diligence Framework

The realization of the principle of ongoing due diligence requires a systematic framework set up by firms:

1. Risk tiering: Consideration of risk tiers allows firms to monitor appropriately.
2. Real-time monitoring: Rather than just keeping a tab once in a while, sanctions, watchlists, and adverse media must be monitored on a consistent basis.
3. Integrated data: Due diligence considerations should be meshed with internal systems in a singular truth.
4. Escalation paths: Ensure that functions exist and are defined for reacting to high-risk alerts the moment they arise.
5. Regulatory alignment: Work on ongoing modifications of processes to match the fluctuation of compliance responsibilities.

It’s beyond just applying technology. It is about a culture of ongoing vigilance within risk management.

How The KYB Helps with Customer Due Diligence

The spectrum of risk in today’s business environment is wide and constantly evolving. Continuous due diligence is no longer optional. It is the safety net that strengthens resilience and supports growth. This requires monitoring transactions to detect unusual or suspicious activity that may signal potential financial crime. In practice, it also means periodically rescreening high risk customers, counterparties, and UBOs to identify changes in their risk profile.

Ongoing due diligence enables organizations to uncover risks that may not have been visible during onboarding, such as newly imposed sanctions, emerging adverse media, or potential involvement in criminal investigations.

At The KYB, we make this process seamless through continuous monitoring that ensures businesses remain compliant with evolving regulatory requirements, where static one time checks fall short. With real time access to official registries and integrated AML screening, our platform delivers the ongoing due diligence organizations need.

Book a demo today to reduce exposure to hidden risks and strengthen compliance, while ensuring your business stays secure, resilient, and transparent at every stage of the relationship.