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Digital KYB Checks: Simplifying Verification for SMEs in 2023

25 August, 2023

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The thorough Know Your Business (KYB) checks are paramount in today’s ever-evolving business environment. Performing these checks is an important part of the verification process, as it protects against fraud and ensures compliance with regulations. Traditionally, KYB has been associated with cumbersome procedures, time-consuming paperwork, and high costs, especially for small and medium-sized businesses.

With the introduction of digital KYB checks in 2023, the landscape of KYB verification will dramatically transform. As technology advances, digital solutions provide SMEs with greater efficiency, cost-effectiveness, and user-friendliness, and this blog discusses how digital solutions can aid SMEs in gaining these advantages.

What is KYB (Know Your Business)?

Compliance with AML and counter-terrorism financing (CTF) laws relies heavily on Know Your Business (KYB). Generally, KYB procedures pertain to compliance checks that corporations and businesses are legally required to perform to validate their identities and protect themselves from corrupt businessmen, financial crimes, and money laundering activities.

The Know Your Business KYB compliance process is similar to the Know Your Customer (KYC) process. It assists in preventing money laundering and other financial crimes. Therefore, KYB services focus more on the company’s owners, shareholders, suppliers, and other stakeholders than individual clients and customers.

Know Your Business Compliance History

Anti-money laundering regulations have included KYC checks for decades, but KYB processes are a rather recent addition to the world of AML compliance. AML regulations were introduced in the US in 1970 to respond to an outbreak of financial crime and money laundering activities.

Several common banking regulations remain in effect today as part of the Bank Secrecy Act (BSA), enacted to combat financial crime. These regulations include tracking suspicious activity, monitoring foreign transactions, and reporting cash transactions exceeding $10,000 daily.

AML guidelines were subsequently incorporated into the 2001 USA Patriot Act, which was enacted in response to the 9/11 terrorist attacks in an attempt to prevent money laundering and terrorist financing. With the enactment of the new Act, banks and other financial institutions were required to follow stringent regulations regarding their customers. It includes collecting personal information and monitoring their financial transactions. Despite this, businesses were not subjected to the same level of scrutiny, which enabled criminals to continue their illegal activities.

After the Panama Papers scandal emerged in 2016, this blindspot was revealed, which prompted FinCEN to revise the Patriot Act and implement the Customer Due Diligence (CDD) Requirements for Financial Institutions to include Know Your Business (KYB) rules. Several other financial regulators worldwide have followed suit, introducing similar regulations to ensure financial institutions rigorously verify business transactions.

KYB SMEs Requirements

KYB regulations require businesses to verify data and information relating to other business entities prior to entering into a business relationship. The KYB checks enable the company to assess other businesses’ legitimacy. Businesses are required to review the following information as part of this preliminary process; the SME KYB requirements include:

  • Name of the company
  • Address of the company
  • Documents related to registration
  • Documents pertaining to licensing

Additionally, before establishing a business relationship, firms should confirm the identity of ultimate beneficial owners (UBOs). A beneficial owner is a shareholder with at least 25% ownership in a company, along with its directors and owners. A business must verify UBOs’ names, legal addresses, and official government documents, such as passports and driver’s licenses. Additionally, it is extremely important that these individuals are not listed on any international sanctions lists and have not participated in any suspicious activity.

Understanding Digital KYB Checks

Simply put, digital KYB checks use technology for collecting, verifying, and authenticating business information, eliminating the need for manual paperwork. As a result of the digitization of KYB, small and medium-sized businesses can benefit from several key advantages:

Process Streamlining

Traditionally, KYB checks have been a lengthy and complex process, which involves submitting numerous documents and completing multiple verification steps. Businesses can complete KYB verification online with digital KYB checks, significantly reducing the time and effort required for the verification process.

Cost-Effective Solution

The processing of documents, the physical storage of records, and the personnel involved in manual KYB checks can be expensive. KYB checks performed through digital technology eliminate the need for physical paperwork. It reduces costs and allows SMEs to allocate their resources more efficiently.

Enhanced Accuracy

Handling manual paperwork can result in human errors, causing inaccuracies and delays. On the other hand, KYB checks performed through digital means are based on automated systems designed to ensure accuracy and reliability.

Improved Accessibility

The availability of traditional KYB verification services can challenge SMEs, particularly those operating in remote areas or with limited resources. These barriers are overcome by digital KYB checks, which are accessible from anywhere and at any time.

Regulation Compliance

The importance of adhering to regulatory requirements cannot be overstated. Through the integration of robust identity verification measures and fraud detection systems, digital KYB checks can assist SMEs in ensuring compliance, thereby reducing the risk of non-compliance and the fines accompanying it.

To Conclude 

SMEs will likely experience a significant impact from introducing digital KYB checks in 2023. Through these checks, the verification process will be simplified, and small businesses will have access to the same technology and tools previously available only to large corporations.

Additionally, digital KYB checks contribute to developing a more secure and transparent business environment. With the help of advanced technologies such as artificial intelligence and machine learning, these checks can flag suspicious activities and detect potential fraud, protecting businesses against financial losses and damage to their reputations.

As a result, digital KYB checks will revolutionize the verification process for small and medium-sized enterprises in 2023. As businesses embrace digital solutions, they can streamline their operations, reduce costs, improve accuracy, and ensure compliance with regulatory requirements. In order for SMEs to thrive in a competitive business environment, they must stay ahead of the curve, embrace technological innovations like digital KYB checks, and keep pace with technological advancements.

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