As corporate onboarding frustrations rise, the need for robust Know Your Business (KYB) verification tools has become increasingly crucial for financial organisations.
Key factors driving the growing demand for KYB solutions are –
– the rise of digital and online transactions that have expanded the scope and
– complexity of business relationships and the setting up of shell companies to obscure ownership structures.
By implementing the right KYB verification tool, organisations can strengthen their risk management capabilities, comply with regulatory obligations, and maintain good levels of trust in the integrity of their business relationships.
What is KYB
KYB as the term stands for, Know your business, is the due diligence review of an organisation against money laundering and sanctions data.
KYB enables your business to create policies and assess suspicious activities and transactions.
Following KYB checks can help organisations ensure that they are doing business with a legit company, not a shell company.
Shell companies?
Those which are present only on papers.
Those which have no physical presence and no active business operations.
The regulatory bodies in US demand proper anti-money laundering (AML) measures for business and document verification while dealing with foreign companies.
KYB Verification: Types of information to collect
Knowing who you are dealing with is paramount in today’s business landscape.
Therefore, adhering to Know Your Business (KYB) principles ensures compliance and builds a foundation of trust.
The information that needs to be gathered to verify a business is documents and details ranging from-
– Basic details about the business
– Compliance and licensing information
– Details of Ultimate Beneficial Owners (UBOs)
– Insights into the company’s relationships and context
– Sanction and blacklist evaluations
How Does the KYB Process Work?
KYB process is similar to the one for KYC, but involves a few extra steps.
This is because a financial organisation has to first find out if the company it is onboarding is properly registered and licensed to operate lawfully.
💡 Related Blog: KYB Vs KYC: Learn the key differences
Then it has to establish who has beneficial ownership of the company and perform a KYC check on them—which may need to be done multiple times, as companies often have more than one beneficial owner.
Step 1: Verify that the company itself is legitimate
First, a financial organisation has to look into the company it is onboarding to see if it is properly registered to operate within its jurisdiction.
That includes information such as its legal name, incorporation documentation, tax identification number, any special licensing requirements, and an operating address.
Step 2: Identify the company’s beneficial owners
Next, the financial organisation has to find out who ultimately owns the company they’re onboarding.
This can be tricky sometimes because some companies may use opaque corporate structures with obscure titles such as ‘nominees’, ‘corporate directors’, or ‘bearer shareholders’. Intentionally or not, this can make it difficult to tell who owns the company versus who is just helping to run it.
Step 3: Subject all identified beneficial owners to KYC checks
The next step is for the financial organisation to perform identity verification and customer due diligence on all people identified as beneficial owners of the company being onboarded.
On one hand, this means checking each person’s identity credentials to ensure they correspond to a real person (and not a fake or synthetic ID) and match the person under scrutiny.
On the other hand, it means checking for information that it could be risky—or even illegal—to do business with these people. That includes screening sanctions lists, politically exposed persons (PEP) lists, criminal wanted lists, and even media for negative press coverage.
Step 4: Create an overall risk profile for the company being onboarded
Once a financial organisation has evaluated a company being onboarded—including its beneficial owners—to identity verification and due diligence, it needs to consider the overall risk it would present as a client or partner.
Are there any other indicators that they could be high-risk, such as unfavourable press coverage or presence on regulatory lists? This type of question should be factored into measuring the company’s risk level.
If it is determined that the client (including its owners) is particularly high-risk, a financial organisation may want—or in some cases, be required—to conduct enhanced due diligence (EDD). This involves a deeper dive into the company’s and its owners’ identity and history.
What other organisations do they have relationships with, and what is the nature of those relationships?
What does their transaction history look like?
Does the value of their physical assets match up with that of their intangible assets?
Is it possible to visit their headquarters in person and talk with someone in charge?
Step 5: Monitor the information and risk status of onboarded companies
If it is determined that the client company presents an acceptable level of risk, the financial organisation can continue the onboarding process.
However, KYB is not a “one-and-done” deal. A company’s risk profile can change depending on its performance and other activities, as can changes in the statuses of any of its beneficial owners.
Such changes can warrant re-evaluating a business relationship to implement tighter (or sometimes looser) monitoring controls, or even ending the relationship altogether in extreme cases.
Who Needs to Conduct KYB?
KYB procedures are required to be conducted by various organisations to comply with AML/CFT regulations.
These organisations include not only financial organisations such as banks but also companies that engage in business transactions with other businesses. This includes suppliers, vendors, and partners.
For financial organisations, conducting KYB procedures is mandatory to ensure that they comply with AML regulations. Financial organisations are at high risk of being exploited for money laundering activities due to the nature of their business.
By verifying the identities and ownership structures of their business partners, financial organisations can prevent money laundering and terrorist financing activities.
On the other hand, companies must conduct KYB procedures to protect themselves from fraudulent business transactions and ensure that they are not inadvertently engaging in money laundering activities.
Conducting KYB procedures is also a requirement for companies to comply with AML regulations.
KYB procedures involve collecting and analysing information such as registration documents, company addresses, license documents, and the identities of managers and owners (UBO).
This information is verified using reliable sources, and companies must continuously monitor their partners’ activities to ensure their risk profiles.
The ultimate goal of KYB procedures is to identify and evaluate any suspicious activity, protect companies from being used for money laundering or terrorist activities, and avoid fraud in their accounts.
To make the KYB process more efficient, many organisations use electronic identity verification (eIDV) to automate the verification process. This helps speed up the process and ensures greater accuracy in verifying the identities of business partners.
Find your end-to-end KYB solution at Signzy!
Visit our website to know more.
