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Business KYC Guide: Managing Risk & Verifying Companies

19 February, 2024

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Business KYC refers to company verification and individual partners to ensure regulatory compliance. Before onboarding, financial institutes and other corporate organizations must verify the business, company, or trust. This helps them combat financial crimes through compliance with rigid national or international regulations. The corporate KYC aims to conduct various checks on the company and ensure its legality. KYC for businesses follows the process from collecting required documents to verifying entities and their ultimate beneficial owners (UBOs). 

Business KYC: Overview & History 

Business KYC or Know-Your-Business (KYB) is a process to verify the company through strict measures. These derivatives are designed by the international watchdog Financial Action Task Force (FATF). This can be implemented according to each country’s policies and regulations, but the primary goal is to secure the global economy. It uncovers the complex ownership structure of the company and provides an in-depth background check. By ensuring company legitimacy, the onboarding institutes ensure the partner business is not involved in illicit activities. 

Companies have upheld customer KYC from the time of Pablo Escobar’s drug lord to prevent illegal money trade. After 9/11, FATF’s G7 countries expanded their control and forced global countries to comply with 40 recommendations to combat terrorist financing. Nevertheless, in 2016, the US Financial Crimes Enforcement Network (FinCEN) obliged businesses to use Customer Due Diligence (CDD) to prevent illegal companies. Now, it is compulsory to comply with AML/CFT regulations through the KYB checks. These measures can differ from country to country but are designed according to FATF recommendations so they can meet international obligations.

Importance of Business KYC 

Most companies think corporate KYC is only for financial institutes to combat illegal transactions. However, business KYC is indeed essential for financial organizations, but other companies can not overlook KYB checks. Given below are the significant points for entities to follow KYC for business: 

  • To enhance the business reputation by complying with international regulations and streamlining onboarding business along the security 
  • To make business international and expand company growth globally through partnering with various brands worldwide 
  • To ensure they comply with the AML/CFT regulations, which will assist them in avoiding penalties and combating financial crimes
  • To enhance the company’s loyalty to the customers by complying with KYB derivatives and providing them with a secure environment for partnership 
  • To mitigate fraud by conducting risk assessment during onboarding and verifying the potential risk associated with the client.

Fraud Business KYC

Advantages of Business KYC

Complying with KYB regulations gives all businesses significant advantages. It protects them and enhances their reputations and brand loyalty. Even if the company doesn’t fall under KYB, checks must comply with it to combat financial crimes. An adequate business KYC system ensures regulatory compliance, partner checks, and real-time instant monitoring while providing a trustworthy business environment to its customers. 

Compliance

International law enforcement agencies design various obligations to combat financial crimes. These regulations are designed according to the country’s policies and industry. Companies must comply with national and international rules to combat money laundering and terrorist financing. Nevertheless, it is not as simple as it sounds. These regulations constantly update and vary from country to country and industry to industry. 

Without efficient KYB checks, compliance with these is impossible. Online business KYC ensures the company’s global compliance and provides real-time alerts on new regulations. 

Risk Assessment

If a company conducts KYC for its partner business, it has an entire risk-associated approach before onboarding them. The risk assessment provides in-depth knowledge about the companies and their owners. It ensures the transparency check through their background dealing with other businesses to avoid any type of encumbrance in the future.

 With the risk assessment approach, onboarding companies can take steps according to the risk associated with the company. The business KYC assists companies to differentiate high-level, medium-level, or lower-level risk businesses. 

Brand Protection

The KYC business process ensures the company’s brand reputation is saved from adverse media. It screens the company’s information, including their owner data, against the government and third-party databases such as AML, adverse media, and financial crimes. These KYB checks ensure the partner is not involved in illicit activities damaging the company’s reputation. This security step enhances customers’ experience and makes a positive impression of working with the company.

Mitigate Fraud

KYB solution assists companies in mitigating fraud by preventing illegal business onboarding and identity theft. By confirming the legitimacy of clients and entities, companies can ensure they are partnering with legal ones. 

Furthermore, it guarantees that the companies are not fraudulent and not using counterfeit business KYC documents. Hence, companies must follow these rules to prevent financial crimes and illicit activities, such as money laundering, terrorist financing, mass weaponization, and human trafficking etc.

Business KYC Practices

Best Practices to Verify Companies 

Despite these rigid regulations, scammers still find new loopholes through advanced solutions. As technology evolves daily, fraudsters use various techniques to beat the system and conduct illegal activities. Companies need adequate business KYC to combat these frauds. Given below are the best practices to verify companies: 

Step-1 #Information Collection 

The first step is to gather the required information from the company about their owners and business. Remember to reap only essential data according to the KYB measures and the country’s policies. Companies can use customizable forms to collect only the required information and save time to streamline this procedure. The adaptable method allows companies to only collect essential data according to industry and government policies. 

Step-2 #Verify Documents 

Attestations of the papers are essential during business KYC. It ensures the documents submitted by the companies are legal and not counterfeit. Verification of papers can be done by checking security features such as borders, signatures, fonts, etc. This ensures the papers are legal, but the guaranteed results data validation is also needed. It led us to the next step

Step-3 #Data Validation

Document confirmation can not be done without data validation. Companies should use Optical Character Recognition (OCR) technology to convert written data into computer-readable text. It assists them in cross-checking the data from the government databases to ensure that the information written is not manipulated. 

Step-4 #Client Screening

To confirm the company and its owners are not involved in illicit activities. Screening their information from the various databases such as AML, CFT, financial crimes, and politically exposed persons (PEPs) is essential. The cross-referencing through government and third-party databases, including adverse media, guarantees the company’s legitimacy. 

Role of The KYB in Business KYC 

The KYB is the ultimate data provider for business onboarding through advanced technology and customized business collection methods. The manual KYC for business takes time and is error-prone. We provide in-depth document validation and machine learning big data cross-checking for accurate results. The KYB has 250+ databases with 301M registered companies and a global compliance process to avoid penalties. KYC businesses, through the KYB, assist companies in worldwide expansion.

Revolutionize your company onboarding process by swiftly complying with the business KYC. The KYB offers compliance with rigid regulations and transparency in the complex company ownership structure while providing a streamlined onboarding experience.

Get in touch with us today for more information.

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