KYB Vs KYC: Learn the key differences

Financial organisations such as banks, credit providers, and insurance companies must comply with common regulatory requirements known as the Know Your Customer (KYC) and Know Your Business (KYB) processes.

These requirements persuade financial organisations to identify their customers and comprehend the nature of their financial activities.

Due to their ability to reduce the risks of money laundering and terrorist financing, both are crucial to preserving the integrity of the financial system.

Let’s understand what they are and what are the differences between them.

What is KYC?

Know Your Customer, or KYC, is a legal mandate that seeks to verify clients’ identities prior to account opening at any financial organisation.

US laws and regulations have made KYC mandatory in order to stop the funding of terrorism and money laundering. It entails gathering individually identifiable information, which includes Social Security numbers, birth dates, addresses, names, and credit histories.

By giving their clients a face and identity, KYC assists financial institutions in avoiding online fraud and adhering to anti-money laundering (AML) laws.

What is KYB?

KYB (Know Your Business) is a more detailed compliance process than KYC.

While KYB is similar to KYC in many aspects, it is designed specifically for firms that interact with one another.

KYB entails vetting and confirming a variety of corporate and business entities that may cross borders, tax regimes, and regulatory environments.

KYB is intended to prevent fraud and money laundering by terrorist financiers, drug traffickers, and multinational criminal organizations. It entails manually searching legal filings, getting documentation from ultimate beneficial owners (UBOs), and comparing financial records.

What are the differences between the two?

Objective and Application

KYC

KYC is vital in the fight against financial crime. Organisations can develop effective KYC policies –

• Check clients’ identities: This includes requesting basic personal information such as name, photograph, place of residence, date of birth, and copies of appropriate identification, and comparing it to legitimate sources that can validate it.
• Keep an eye on clients’ actions: This includes closely monitoring financial transactions and reporting any suspicious conduct.
• Maintain documents: This includes keeping all essential or legally needed records of KYC checks and other customer information.

Businesses can prevent money laundering and fraud by verifying their clients’ identities. 

KYC can also assist in identifying and preventing questionable behaviour.

 It is used in a wide range of contexts, including

–        Opening a bank account

–        Applying for a loan

–        Starting a business

–        Buying property

KYB

Keeping the financial system free of criminals is a top responsibility for all organisations involved, and KYB plays a critical role in this effort.

Verifying a company’s identity reduces the possibility that criminals will use a bogus or illegal operation to launder money or commit fraud.

In addition, KYB can help detect suspicious behaviour and prevent large-scale financial crimes.

The purpose of KYB is to-

• Check the validity of companies: This includes acquiring and checking documents such as registration certificates, tax identification documents, and financial reports.
• Discover who the Ultimate Business Owners are:  This includes determining the identities and risk profiles of a company’s beneficial and controlling shareholders.
• Keep an eye on business deals: This includes monitoring financial transactions and looking for suspicious activities by the company in question.
• Maintain proper records: This includes keeping track of their KYC processes and related business data.

KYB is applied in a variety of scenarios, such as

–        A business applying to open an account.

–        Onboarding consumers, partners, investors, suppliers, or vendors from anywhere in the world

–        Companies are going public

–        Dealing with a high-risk business, such as one located in a high-risk jurisdiction, i.e., a country or state with lax anti-money laundering regulations; operating in a high-risk industry

Procedures and Processes

KYC

Following are the steps through which KYC verification is typically carried out:

Firstly, facts such as names, residences, dates of birth, and proofs of identity are gathered from the customers.

Then AML Screening is to be done in which the person’s name is searched in various databases that contain PEPs and those under sanctions.

PEP listings include individuals who are currently or have previously held positions of considerable, influential influence. It also entails looking into any bad media coverage, i.e., media reports that incorrectly reference the individual, as this could imply some form of past misconduct, such as financial crime or other illegal activities.

After that, individuals are asked a series of questions about their financial background and habits. These inquiries determine the individual’s probable involvement in unlawful financial operations, such as money laundering.

The final step is to determine whether or not the customer is worth doing business with.

KYB

Let’s now discuss how the KYB procedure operates.

First step is to verify the registration of business. Is the company legitimate, or is it registered? Does it possess all the licenses and permits required for its operation?

Then, Ultimate Beneficial Owners* and the structure of shareholders are identified.

*Individuals who control a sizable portion of the company either directly or indirectly or who have a major say in how it is run are known as ultimate beneficial owners.

Determining the likelihood that a company may conduct financial crime is part of the business risk assessment process. This assessment considers a number of variables, including the nature of the company, its operations, its location, its financial standing, and its clientele. 

Well, this doesn’t end here. Frequent check-ins are required to determine if anything has changed that might affect the amount of danger it poses to you.

Challenges and Solutions

KYC

Following are some challenges faced in the implementation of KYC, and possible solutions for these challenges. 

Identity theft-  Using someone else’s identity to perpetrate fraud or another crime. Identity theft can be difficult to detect and costly for organizations to address.

Solution- Digital ID verification can be used to swiftly authenticate the legality of identity documents such as passports and licenses, without devoting too many resources to fraud prevention.

 False documentation- Using falsified or doctored identification documents.

Solution- Biometric authentication – Many biometric systems have anti-spoofing filters. They can also match data more precisely than any human agent could.

KYB 

Following are some challenges organisations face when performing KYB checks along with potential solutions.

Lack of standardization- There is no obvious or universal mechanism to conduct KYB verification or measure its effectiveness.

Solution- Use a KYB platform that will lead you through your trip by giving you a template of sorts.

Complexity- KYB compliance checks typically necessitate the use of various tools and sources, such as commercial or government registers, AML checks, and KYC checks, to obtain a complete corporate picture.

Solution- Use KYB services that provide a comprehensive solution that addresses all aspects of the KYB process and is willing to modify their offering to include elements that may be missing from your current process.

Risk assessment- KYB entails assessing the risk level of each business based on a number of criteria, which can be subjective and time-consuming, resulting in slow and ineffective judgments.

Solution- Digital platforms use powerful algorithms and AI to simplify and streamline the KYB process, cutting mistake rates and allowing for faster decision-making.

Make Signzy your partner for your KYC or KYB journey! 

We will assist you in achieving worldwide compliance through increased KYC verification to reduce costs, combat fraud, and increase efficiency.

Visit our website to know more!