Simplified due diligence (SDD) lets an accountant scale back the extent, timing or type of customer due diligence where a client or transaction genuinely presents a low risk of money laundering. It is not an exemption: the firm must still identify and verify the client and any beneficial owners, collect a register excerpt where one is required, and monitor the relationship. The low risk judgement has to be made under regulation 37 and recorded, and SDD must stop as soon as the conditions fail.

Where does the power to apply SDD come from?

Regulation 37(1) of the Money Laundering Regulations 2017 (MLRs) allows a firm to apply simplified customer due diligence measures to a particular business relationship or transaction if it determines that the relationship or transaction presents a low degree of risk of money laundering and terrorist financing. In reaching that view it must take into account:

  • its own firm wide risk assessment under regulation 18(1);
  • relevant information made available by its supervisor and by government under regulations 17(9) and 47;
  • the risk factors listed in regulation 37(3).

The decision is about the specific client, not a category of client. HMRC’s guidance at AMLG11500 makes the point directly: standard customer due diligence is the expected starting level, and a firm that departs from it must be able to show why. For the standard measures themselves, see customer due diligence for accountants.

Which factors can indicate low risk?

Regulation 37(3) lists factors a firm must consider. Those that can apply to accountancy clients include:

  • Customer factors: a public administration or publicly owned enterprise; an individual resident in a lower risk geographical area; a regulated credit or financial institution subject to equivalent AML supervision; a company whose securities are listed on a regulated market.
  • Product and service factors: mainly financial products such as low premium life policies, certain pension schemes, child trust funds and junior ISAs, which are rarely what an accountant provides.
  • Geographical factors: the client is resident, established or operating in the UK, or in a third country with effective AML systems and low levels of corruption.

Regulation 37(4) then adds an important caution: the presence of one or more of these factors may not always indicate low risk. HMRC puts it more bluntly: one factor on its own should not be taken to indicate low risk, all the information must point the same way, and a firm must not assume a client is low risk to avoid doing an appropriate level of CDD.

What does HMRC expect before SDD is used?

HMRC’s guidance for the businesses it supervises (AMLG11500, section 15.6) sets out conditions it expects to be met. They are a useful benchmark for any practice, whichever body supervises it:

  • the decision is supported by the client risk assessment and the firm can evidence why it departed from standard CDD;
  • enhanced due diligence does not apply;
  • the client is not established in or operating from a FATF call for action country;
  • the client is not a politically exposed person, family member or known close associate;
  • the client’s source of funds or wealth is transparent and understood;
  • where the client is not an individual, there is no beneficial ownership beyond a single UK legal entity;
  • anyone representing the client has been checked for authority to act.

HMRC also accepts that a client well established in the community, with professional standing or known to the firm for some time, may merit a low risk rating, but says the firm still needs evidence to support that decision.

What checks are still required under SDD?

Regulation 37(2)(a) is the core rule. A firm applying SDD must continue to comply with regulations 28, 29 and 30A, but may adjust the extent, timing or type of the measures it takes under regulation 28 (and parts of regulation 29) to reflect the low risk. Regulation 37(2)(b) also requires sufficient monitoring to detect unusual or suspicious transactions. In practice that means:

  1. Identification still happens. The client and any beneficial owners must still be identified and verified, and the purpose of the relationship understood.
  2. Verification can be lighter. HMRC gives the example of verifying identity with a single authoritative document, such as a passport, that shows the person’s name and either address or date of birth.
  3. Purpose can be inferred. Information already held can be used to understand the nature of the relationship without asking for more.
  4. Timing can be adjusted. HMRC expects SDD to be completed no more than 14 days from the start of the relationship or transaction.
  5. Monitoring can be less frequent, for example reviews triggered by a change rather than on a fixed cycle.
  6. The register excerpt is not optional. Because regulation 30A survives SDD, a firm taking on a UK company or LLP must still collect an excerpt of the beneficial ownership information on the Companies House register before the relationship starts, and report any material discrepancy. See verifying beneficial owners.

When must a firm stop applying SDD?

Regulation 37(8) says a firm must not continue to apply simplified measures if:

  • it doubts the veracity or accuracy of documents or information obtained earlier for identification or verification;
  • its risk assessment changes and it no longer considers the risk low;
  • it suspects money laundering or terrorist financing;
  • any of the enhanced due diligence triggers in regulation 33(1) applies.

This is why SDD depends on ongoing monitoring. A client that was low risk at onboarding can stop being so when its ownership changes, it starts trading overseas or a director becomes a PEP. At that point the firm must bring CDD up to standard, or apply enhanced due diligence if a regulation 33 trigger is met.

Is SDD the same as the listed company exemption?

No, and confusing the two is a common error. Regulation 28(5) separately disapplies the requirements to verify the constitution and directors, understand the ownership and control structure, and identify beneficial owners where the client is a company listed on a regulated market. That is a fixed carve out for listed companies, not a risk judgement. A subsidiary of a listed group is not itself listed, so the exemption does not automatically extend to it, although the group structure may still be relevant to the risk assessment when deciding whether SDD is appropriate.

What does SDD look like in practice?

Illustration only. A practice is asked to prepare annual accounts for a parish council and, separately, for a UK sole trader who is a retired teacher letting a single property. For the parish council, a public authority, the firm records that it is a public administration, verifies its existence from official sources, confirms the authority of the clerk who instructs it, and schedules review only on change. For the landlord, the firm records UK residence, a simple single property business, rental income paid by a letting agent into an account in the client’s name, and no PEP or adverse media results. It verifies identity from a passport, notes that the purpose of the relationship is self evident from the engagement, and sets a review when the next engagement letter is issued. Both decisions are signed and dated by the person responsible for client acceptance.

Contrast a single shareholder company owned through a holding company registered abroad. Even if the trade looks routine, the ownership goes beyond a single UK entity, so on HMRC’s benchmark SDD would not be appropriate.

What are the common mistakes?

  • Treating SDD as “no CDD” for long standing or referred clients.
  • Recording “low risk” with no reasons, which cannot be demonstrated to a supervisor under regulation 28(16).
  • Forgetting the Companies House register excerpt and discrepancy duty, which still apply.
  • Never revisiting the rating, so SDD continues after the facts have changed.
  • Applying SDD to a whole class of clients, such as all sole traders, rather than case by case.

The firm’s approach to SDD should be written into its policies and procedures and will be examined by its supervisor; see AML supervision for accountants.

Solar Protect runs fee protection schemes for accountancy and bookkeeping practices. See how our accountant schemes work or read fee protection schemes for accountants.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.