Frauds, scams, and security breaches have become a common thing, even at a company level. Therefore, corporate protection is important.
Few software tools and solutions can actually help verify the legality of the businesses you deal with, even though there are many options available. Such options only promise to keep your company, employees, and customers secure.
As a manager or a business owner, it should be your first priority to make sure that none of the companies you work with are involved in money laundering or other illegal activities.
There’s a chance of failure of your business in case you enter into a partnership without first confirming the legitimacy, ownership structure, and reputation of your soon-to-be new partner. This is where KYB helps!
KYB verification procedure allows businesses to know who they’re working with ‘up close and personal,’ lowering the risk of fraud by assessing questionable activities or transactions.
Let’s understand KYB in detail.
Know your business (KYB)
Know Your Business, or KYB verification, is a method that verifies the validity of other businesses with which you work before entering into a business relationship.
This could include any stakeholder company or third-party, such as a supplier, with whom you deal with.
KYB verification is a continuous due diligence process that includes several checks to monitor changes in your clients’/partners’ risk profiles. This complicates KYB, particularly for organisations that need to do these tests due to obligatory AML compliance requirements.
However, many unregulated companies do some form of commercial background check for their internal risk assessments.
In short, companies that use KYB verification have two goals. What are they?
- To follow regulators’ policy
- To avoid internal fraud threats or deceptive partners and third-party vendors
This makes KYB verification important since it helps organisations –
- To understand who they are dealing with
- To avoid collaborating with shell entities that exist only on paper for unlawful reasons
- To calculate the necessary level of due diligence to apply to each customer’s account
Why does KYB matter?
KYB is a relatively recent concept in the field of fraud mitigation.
KYC standards have been protecting businesses since 2002, but until recently, there existed a gap. What kind of gap?
Corporate ties were not subject to the same scrutiny as people.
This meant that criminals might create shell companies and exploit them to swindle businesses, or, more typically, use real companies to conceal their identity.
Since only business documents used to be reviewed and that too in a hurry, the fraudster may launder money, commit fraud, or sponsor terrorists without being directly investigated or leaving a paper trail.
In 2016, the US Financial Crimes Enforcement Network (FINCEN) addressed this issue by implementing new Know Your Business laws as part of its Customer Due Diligence (CDD) requirements.
Any company that works with another business now has a standardized procedure for determining whether the company is authentic.
Who needs to conduct KYB?Â
While KYB is not as widely used as KYC, it is becoming increasingly crucial for firms looking to stay compliant and prevent fraud.
Banks, financial institutions, and firms that work with them (such as fintech or crypto enterprises) are legally required to perform KYB verification.
However, KYB practices can help organisations prevent fraud while increasing trust and safety. When you use KYB, you can be sure that all of your business partners are legitimate.
7 steps for an effective KYB verification check
Companies can perform an effective KYB verification check in 7 steps as stated below-
The first step is to get company details.
Organisations can use API webhooks to generate a KYB case from within their internal systems.
Customer-provided information can be entered alongside extra data discovered during analyst-led inquiries.
These data are saved in the company’s internal systems, which eliminates the need for separate compliance processes and platforms.
Then you have to auto-verify registry data against customer-provided information.
At this point, compliance personnel can confirm that the collected company data matches the register by auto-validating the information obtained from their customers.
Next, businesses can assess the accuracy of registry information pertaining to key entities affiliated with the business.
Compliance officers can also generate a comprehensive summary of a case by manually adding additional information regarding beneficial ownership obtained during the identification verification step.
Fourth step is to get dynamic risk scores for the company and its controlling entities.
Businesses can benefit from the KYB system’s dynamic functionality during the screening process, which updates when the business’s risk changes and alerts compliance officer for evaluation.
Companies can guarantee that risk scores match their appetite for AML/CFT concerns.
How?
By developing their own risk formula.
Further, companies can use the risk score to automate the level of due diligence that should be undertaken on the business throughout the onboarding process and on an ongoing basis thereafter.
After that, the company’s risk score will continue to evolve as it is screened against a real-time worldwide database of sanctions, watchlists, politically exposed persons (PEPs), and negative media.
Sixth step is the crucial one. It is where you have to decide whether to onboard or reject.
Compliance officers can now determine whether to onboard or reject a corporate entity based on the level of risk it poses.
Last step is to perform ongoing monitoring.
Once a customer is onboarded, they are subject to continual monitoring measures that are automatically selected based on their risk score.
If the organisation is low risk, firms may use simplified due diligence (SDD) techniques.
Companies may use conventional or enhanced due diligence (EDD) techniques if a larger risk is presented.
Companies using an automated KYB system can automatically monitor for changes in their customers’ AML risk profile.
Get started on KYB with Signzy
Know Your Business (KYB) practices assist all businesses, not only fintech ones. In fact, it is critical for any corporation that collaborates with other businesses in any way.
There is no silver bullet for organisation verification, and KYB is not a one-size-fits-all solution for preventing fraud.
It’s merely another tool in your arsenal to help you comply with legal requirements and defend your company from criminal actors.
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