Understanding Law Firm Risk Ratings, SDD, CDD and EDD the Simple Way

Author, Amy Bell, CEO and Founder of AML Sorted

Law firm risk rating is one of those topics that can feel more complicated than it needs to be.

In my AMLCO masterclasses I tried to simplify it, because once you understand the logic, everything else falls into place.

Law firm risk ratings - start with the overall risk

Your first assessment is always a big-picture view. Who is the client, what is the matter, are there any obvious risk factors? That gives you the initial rating before you begin your checks.

From there, the due diligence level follows.

When simplified due diligence applies

Some clients genuinely carry low risk. In those cases you do not need to over-engineer the process.

In my training we talk about situations like government bodies or listed companies.

“We are not going to be chasing down the beneficial owners of Coles or Woolies.”

That always gets a smile. And it is true. You confirm the nature of the entity but you do not go digging unnecessarily.

When standard due diligence is enough

Most matters will sit in this middle category.

You gather key information, verify one piece of KYC information as required under the Australian rules, and make sure you understand the nature and purpose of the matter.

This is the backbone of everyday practice, and the good news is that most of you are already doing it.

When you need enhanced due diligence

EDD is for the top end of the risk scale, high risk jurisdictions, politically exposed persons, or situations where the structure or source of funds needs deeper exploration.

At that point, you are normally going to need both proof of funds and proof of wealth, and you will likely set a more frequent refresh period and stronger ongoing monitoring.

Do not forget to update the rating

In the masterclass I explain that risk ratings change as you gather more information.

“Once I understood the full picture, I moved this matter back to standard due diligence.”

Your risk rating should reflect real information, not a frozen first impression. If your understanding improves, update the record.

A clearer framework for your team

This is one area where firms make big gains simply by standardising their approach. Your team does not need twenty versions of a form. Just a structure that guides the right questions at the right time.

Our Sorted Solutions already builds this logic into its workflows, but you can start mapping it now even if you are not ready for software yet.

Thanks for reading and if you'd like to understand more about how AML Sorted can support you and your firm, why not drop us an email?

EMAIL US - we'd love to hear from you