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Corporate KYC: Helping Businesses Ensure Compliance & Mitigate Risk

18 December, 2023

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Know Your Customer (KYC) procedures have been a part of Anti-Money Laundering (AML) laws for some time now. But, given the increasing risk of dishonest and criminal activities, it is no longer adequate to verify that businesses partnering with your organization are legitimate. To properly protect their organization, avoid fraud, and adhere to legal requirements, businesses must thoroughly investigate and verify each company they do business with (especially for FinTech companies). Know Your Business, or corporate KYC, is the term for this. Nevertheless, this article explains business KYC and assists businesses in maintaining compliance.

What is Corporate KYC?

Standard KYC entails looking into and authenticating individual entities. However, it goes one step further with corporate KYC by using it to confirm the validity of firms. While corporate KYC is only legally required by regulators for financial institutions and some associated firms such as Fintech or Cryptocurrency companies. It is advantageous for all organizations, particularly B2B service providers.

Know Your Business verification allows companies to stay assured that their partner businesses are authentic entities. Additionally, it helps companies verify who will profit from the company’s success and ensure it’s not engaged in illicit activities.

Origin of Corporate KYC

Corporate KYC is a relatively new phrase in terms of compliance, particularly when contrasted with consumer KYC identification checks, which is a longer-established practice. The absence of business relationship-specific AML safeguards resulted in a security vacuum for many years.

In 1989, the Financial Action Task Force (FATF) was established by the G7 to combat Pablo Escobar’s drug enterprise’s attempt to penetrate the global financial system. Additionally, the FATF broadened its mandate after the 9/11 attacks to encompass Counter-Terrorism Financing (CTF), protecting the world’s financial system from illicit activities.

To address this problem more thoroughly, the US Financial Crimes Enforcement Network (FinCEN) implemented new laws under the CDD rules in 2016. These regulations mandate that every company doing business with another organization adhere to a standardized procedure for confirming the legality of that other enterprise.

Challenges in Corporate KYC Checks

The complexity and cost of individual KYC processes are lower than those of corporate KYC procedures. However, some of the most significant issues with the corporate KYC process include the following:  

Lack of Information

Any financial institution can run across mistakes and discrepancies in business registration records and filing histories while trying to confirm a corporate customer’s KYC information in a different jurisdiction. In addition, inaccurate data harms financial organizations since they depend on it to make decisions.

False Positive Errors

Regulated businesses spend a lot of money investigating false positives, even though they are usually unjustified. Nevertheless, companies that do not conduct thorough PEP and sanctions screening risk severe penalties from the rule.

Time-Consuming Manual Onboarding

Banks and companies implementing corporate KYC are always concerned about the actual costs and resources needed to check prospective clients before user onboarding. The onboarding organization, the prospective client, or the business client may decide not to onboard due to the time and effort involved in the process.

Constant Monitoring

Once a business is onboarded, corporate KYC issues continue. Ownership, business interests, and firm structures are all flexible. Therefore, a company could not be compliant going forward even after completing a KYC check at onboarding. Banking, financial services, and insurance companies (BFSIs) have to reclassify current businesses and clients who were previously judged low-risk due to the constantly evolving nature of AML/CTF law globally.

Corporate KYC Industries

The Significance of Corporate KYC

Businesses can take advantage of adhering to KYC regulations for companies in three main ways:

  • Compliance: Regulated businesses are often subject to severe fines and even jail time if they violate corporate KYC laws. Specific rules are exclusive to a particular country, such as the 2016 CDD Final Rule in the US. Furthermore, some compliance procedures are more widely applied, requiring businesses to refrain from doing business with organizations or corporations sanctioned by OFAC.
  • Fraud Prevention: Corporate KYC helps lower the possibility of fraud and damages from illegal businesses. By doing extensive due diligence on companies before establishing a commercial partnership, organizations can reduce the likelihood of being associated with money laundering, terrorist financing, and other illicit activities.
  • Builds Trust: Enforcing a stringent corporate KYC procedure boosts consumer confidence in brands, fosters a sense of security, and facilitates their interactions with you. KYC for business customers is especially useful for marketplaces since it guarantees that all users on the platform can trust one another because they have all completed the verification procedure.

How does Corporate Verification Work?

  • Assembling Information Regarding Business and Stakeholders

The initial and often the most challenging step in the corporate KYC procedure is collecting all the necessary data for companies to verify the legitimacy of the organization. Company name, address, and Know Your Customer (KYC) documents are all part of it. These details help businesses make sure the business is real and not just a fake one on paper.

Finally, organizations have the ability to gather information regarding the Ultimate Beneficial Owners (UBOs) of the company or any individual who possesses a 25% or greater ownership stake. Name, date of birth, address, and identification number should be included in this information for each individual.

  • Data Verification

The next step is to confirm the gathered data. For instance, even after confirming that a UBO is who they claim to be, companies still have to ensure they aren’t connected to watchlists or engaging in fraudulent activity.

  • Decision Making

Once a business has gathered, examined, and validated all pertinent data about the company and its stakeholders, then comes the decision-making stage. Here, companies must apply the knowledge they have gained to evaluate the degree of risk that doing business with this firm poses to the organization. 

In this stage, businesses decide whether pursuing a relationship is worthwhile. Ultimately, companies inform the concerned firm of their choice, or it may risk losing the connection.

Where The KYB Steps In

Corporate KYC might be difficult to understand without automation. Businesses must finish a significant amount of paperwork and do a thorough background investigation on the business and its stockholders. However, a completely automated platform can streamline corporate KYC verifications, and that’s where the KYB comes in. 

The KYB’s business verification solutions help businesses integrate corporate entities more quickly by efficiently gathering data. From UBO verification to accomplishing automated AML checks, our access to 250+ accurate data resources allows us to check against watchlists and sanctions lists.

Talk to our experts today and see how our automated business onboarding solutions can help you save time and money.

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