KYB for Credit Unions: Build a Compliant, Member-Centric Business Verification Process

Could you possibly lose a promising business partnership just because the Know Your Business (KYB) process was perceived as overly intrusive, complex, and confusing instead of being efficient and timely? Unfortunately, yes, there is quite a likelihood of that!

With big banks offering seamless and mobile-first experiences to their clients, credit unions are stepping up their digital game to stay in the competition.

This is because in today’s financial landscape, customers expect to handle their finances online. So if your credit union doesn’t support reliable and safe onboarding, you may not be able to attract new members. Not only may you miss the chance on this, but even your trusted and long-standing members may leave for a digitally advanced competitor.

If your credit union offers banking services to business clients, now is the time to think about a digital upgrade and an automated Know Your Business (KYB) solution.

What is KYB for Credit Unions?

As financial institutions, credit unions must comply with the anti money laundering (AML) laws due to the FinCEN’s Customer Due Diligence (CDD) rule in the US and the Financial Action Task Force (FATF) global recommendations. These key regulations require credit unions to ensure KYB compliance and help them not only to stay on the right side but also protect their cooperative models, reduce risk and foster transparency.

Additionally, if your credit union offers product-based financial assistance or services in the form of business banking, mortgages, or loans, KYB for potential members is essential before they are onboarded.

Know Your Business for credit unions refers to the due diligence procedure that credit unions are mandated to ensure. This means that if they are engaging with another business entity either as a supplier or a member, they have to keep their due diligence practices in place for anti money laundering (AML) compliance, fraud, and risk mitigation. Credit unions need to make sure that the director, owner or business doesn’t hold any risk of default and for that, warnings and regulatory enforcements and adverse media screening play a crucial role in analyzing whether any court cases are going on against them.

For example, a customer or a business may come to a credit union for its services to open an account with it. There is a possibility that the business could be sanctioned, or the customer may be in the adverse media meaning they could have been convicted, accused, or publicly linked to crimes or reputational risks through negative news coverage, even if not officially charged.

That’s what the KYB for credit unions is for. It aims to act as a barrier to those looking to use the financial system for illegitimate reasons such as money laundering, fraud, and terrorist funding. At its core, a robust and efficient KYB process helps a credit union with:

• Evaluating the legitimacy of a business or a customer prior to onboarding them.
• Identify and screen the ultimate beneficial owners (UBOs) against government databases.
• Evaluating both the current and future risk of a client or business entity.
• Streamline and accelerate onboarding based on fully compliance-backed decisions.

When Credit Unions Must Perform KYB

If a credit union works as a financial service provider, it may get business clients who would want banking services. In this case, KYB is a non-negotiable thing and required to implement a KYB check on both the business and its persons.

Additionally, it is always a safe option not to limit KYB just to members. Extending this scrutiny to your external partners (vendors, consultants, other business partners) helps build a risk-aware and fraud-resistant environment.

KYB Compliance and Credit Unions

KYB for credit unions comes with some specific regulatory expectations. These crucial requirements are designed to ensure AML compliance and actively reduce the risk of fraud or operational risk.

1: Business Verification

In the initial step, a credit union will have to verify that the business in question is fully compliant. Now, what this means is that the business must be verified from two major aspects. This involves checking the legitimacy of both the business and its persons (directors, shareholders, and UBOs).

Usually, identifying and verifying UBOs is a separate and extensive procedure and comes after business verification. For business verification, credit unions should collect important documents to substantiate the legitimacy of a business. Crucial information includes:

• Name of a business
• Articles of Incorporation
• Articles of Association
• Proof of registration and incorporation
• Company ownership details and shareholder register
• Government or local business license
• Tax Identification Number (TIN)

2: UBO Identification and Verification

Implementing checks on a business is not sufficient. In any business, the individuals who own and exercise a certain control over it are important as well. Depending upon the jurisdiction and the threshold of UBO, the KYB for credit unions identifies and verifies people who own at least 25% of the company’s voting rights and have significant control over the business.

While the primary purpose of this step is to ensure that UBOs are AML compliant, screening them against public databases such as sanctions lists, PEP lists, and adverse media helps in identifying the risk posed by the UBOs. However, checking them for the potential risk of fraud and financial risks is equally crucial, helping you partner safely. For example, if a customer or a business goes into default, KYB’s ongoing monitoring ensures transparency by tracking changes and detecting anomalies early on.

3: Perpetual KYB and Transaction Monitoring

After the above two steps, a credit union may onboard a business, but it doesn’t ensure ultimate safety. Ongoing monitoring is actually the phase of the KYB procedure where business entities, or credit union members, are assessed periodically.

KYB for credit unions will look into the member’s profile in order to evaluate the risk of financial crimes posed by them in the future. Conducting transaction monitoring, especially for high-risk members, adds an additional layer of security, helping detect potential money laundering and fraud schemes. For keeping an ongoing check on the customers, a credit union must maintain and update its customers’ information, which will include filing relevant reports such as suspicious activity reports (SARs) for unusual cash transactions.

How Credit Unions Can Master KYB Compliance

Credit unions can implement the following practices to optimize their KYB efforts:

• Automate KYB End-to-End

Manual KYB can be extremely laborious and can take a couple of days or even weeks to complete. These delays not only put your KYB strategy into question but may also frustrate the members or businesses coming to you for your services.

Automating business verification can create a significant difference. Where manual KYB procedures may look like visiting multiple data sources to collect information and verify it against government databases, a digital KYB solution helps overcome such challenges, minimizing friction and simplifying the manual hassle. In manual KYB, what seems like a burdensome task can be made efficient and reliable through automated KYB.

• Design Adaptive KYB Flows Based On Entity Types

A successful KYB process starts with a solid understanding of who owns and controls business entities seeking credit union membership. Because credit unions cover a broad spectrum of organizations, from sole proprietorships and LLCs to nonprofits and educational institutions, each type of entity has its own verification needs.

Manually processing this diversity tends to create disjointed workflows and operational logjams. The better choice is to implement an automated KYB process with dynamic branch logic, a system that adapts the verification flow in accordance with the business entity type. This helps your credit union stay compliant and manage complexity efficiently without needing to reinvent the wheel for each member type.

By tailoring your KYB processes to support different ownership types, you can streamline onboarding, eliminating manual errors, and making for a smoother experience for your business members.

• Implement Global KYB

As your credit union’s business member base expands, you might have foreign-owned firms or international businesses looking for services. Even locally registered businesses may have UBOs or shareholders who live outside the country, introducing a whole new level of regulatory and operational complexity.

In order to stay in compliance, you need to tailor your KYB processes for cross-border variations. AML and KYB requirements vary by jurisdiction. Where one jurisdiction may provide transparent UBO registries or public records, another may necessitate other verification methods because of a lack of transparency or availability of data.

A top-tier KYB program must include features that enable you to:

• Determine the entity’s and its owners’ jurisdictional origins.
• Tune verification procedures to local regulatory requirements.
• Use international data sources or fallback procedures when some registries are not available.

By anticipating and designing your KYB process with global compliance in mind, your credit union can expand safely abroad while limiting exposure to cross-border financial crime and regulatory risk.

• Integrate UBO and AML Screening In Unified Flow

KYB for credit unions is incomplete without UBO and AML screening. However, these come with their own set of challenges. In traditional KYB workflows, UBO and AML screenings are often treated as separate tasks. As modern KYB solutions aim to minimize onboarding friction, your applicants or members increasingly expect a unified, one-stop platform. A KYB solution with integrated AML checks and UBO verification fills compliance gaps, ensuring that every business member is vetted thoroughly.

KYB for Credit Unions Made Simple

The KYB serves as the primary data source for business validations and conducting due diligence. As a credit union, you would want to prioritize a reliable KYB solution. And that’s why we are exactly here! Here at The KYB, we offer customized solutions so that you can screen your members in every aspect you want.

We source our data directly from official sources (business registers, UBO and shareholder registers, and other business documents). We ensure data accuracy is up to par, and we help you employ different KYB methods for different types of members or clients your credit union offers services to. This means you always have relevant data in your hands without having to waste much of your time collecting data that is not even relevant.

Additionally, with our fast API and data integrated from over 2000+ data sources, we make global compliance an effortless task.

Request a demo today and learn how to choose the KYB solution that fits the type of your credit union.