Global regulatory bodies have mandated financial institutions, such as banks, insurance companies, brokerage firms, fintechs, and crypto exchanges, to verify customer identity to ensure that they are actually who they claim to be. Verifying a business can allow financial institutions to prevent financial crimes such as money laundering, bribery, financing of terrorist activities, tax evasion, and numerous other related crimes. Back in 2016, “Know Your Business” (KYB for short) was coined which made verification of business entities, prior to forming a relationship, obligatory for the B2B industry. The KYB process allows financial institutions to authenticate companies along with their UBOs (Ultimate Beneficial Owners) to ascertain the legality of the client business itself and also ensures that the higher management is not a part of illegal activities such as money laundering.
KYB Customer Services and their Importance
Performing know your business checks is detrimental to deter fraud. These checks involve thoroughly screening the customer company and its UBOs against global watch lists. Being a comprehensive process of verification, it involves authenticating the company’s registration records, running in-depth background checks along with anti-money laundering checks on the UBOs against criminal watch lists, politically exposed person (PEP) lists, and global sanctions.
Automated VS Manual Processes
KYB can be implemented efficiently with the help of automated know your business solutions. Numerous KYB solutions are available in today’s day and age that allow companies to screen client businesses. Manual verification processes can also be utilized. However, such methods are error-prone and not thorough, cost-effective, or time-efficient.
On the other hand, automated know your business services are backed with artificial intelligence models and provide crucial company insights to enable accurate risk assessment. With major advancements in technology, a high number of companies engage in business relationships with other businesses across the border. Therefore, conventional know your business procedures are considered insufficient while AI-powered KYB checks can be conducted regardless of geographical factors.
KYB Solutions for Fraud Prevention
Fraudulent activities such as money laundering are considerably prevalent even in today’s technologically advanced era. When companies are forming cross-country partnerships, there’s a high probability of getting trapped with criminal organizations which can cause million-dollar fines and damaging penalties. Thus, manual processes are deemed as insufficient as they can be abused by criminal entities for obtaining illegal financial gains. Given this, the best solution for safeguarding businesses from fraudsters and to ensure high levels of security and transparency is to employ a fully automated and robust know your business solution.
Steps in the Standard KYB Process
The first step in knowing your business process is data collection. This involves gathering relevant data about the company, such as the company’s registered name, the date it was created, its registration and fax number, its legal address, and any other necessary information.
The next step is to perform efficient KYC (Know Your Customer) and AML (Anti-money Laundering) checks on the company owners i.e. the UBOs. UBOs include but are not restricted to the company’s key stakeholders, such as major shareholders, directors on its board, and any other entity that might be directly or indirectly related to the company.
The final step involves ensuring that the information collected is accurate. In the case of high-risk entities, enhanced due diligence (EDD) is conducted to ascertain that no ambiguities are left during the verification process. During this, the individuals and businesses are verified against the FATF’s and local government-issued sanction lists via adverse media to expose criminal players.
Automated know your business solutions assist global industries in carrying out a comprehensive verification process prior to customer onboarding. Manual verification methods are deemed to be time-consuming and error-prone, which is why they are being replaced with AI-powered solutions. Additionally, compliance regulations are becoming more severe and complicated, which is why automated KYB solutions are the way forward. This allows the company to not just weed out fraudsters but also enables it to avoid incurring losses due to hefty non-compliance fines.
Verifying a client business can allow financial institutions to prevent major monetary crimes such as money laundering
KYB checks involve screening the company and its UBOs against global watch lists
Automated know your business methods are far more effective than their manual counterparts