Why is KYB FinTech Essential for Preventing Fraud?

While the aim behind the FinTech Revolution was to grow businesses exponentially with swift financial operations, this sudden rise in the frequency of online transactions now increases the risk of fraud. While companies use advanced approaches to collaborate with potential business partners, they often overlook the risks associated with collaborations. In fact, a single collaboration with high-risk companies with suspicious or complex business ownership structures. This is where KYB FinTech comes in. Since the Know Your Business (KYB) plays a crucial role in ensuring transparent corporate and finance structures, it significantly helps the FinTech industry prevent fraud issues.

Read this extensive article to discover everything about the role of KYB verification for Fintechs. 

Rise of FinTech & Fraud

As per Statista, the FinTech industry is expected to hit $3.5 Billion by the end of 2024. FinTech companies are totally changing the game when it comes to how businesses handle transactions. This is the reason why many FinTech companies are associated with fraudulent activities since it is now challenging to keep track record of all financial activities of companies.  In fact, dealing with worldwide financial entities is challenging as companies are making cross-border transactions. Nevertheless, the following are the primary fraudulent threats associated with Financial Technology, owing to KYB FinTech in the industry:

• Business Identity Theft: In corporate identity theft, fraudsters or scam companies primarily use stolen or fake identities to open accounts and conduct fraudulent transactions. 

• Synthetic Identity Theft: This is an innovation in the business and FinTech industry where imposters scam by combining real and fake information to create a new business or UBO identity, eventually utilizing it to open accounts and commit fraud.

• Money Laundering: One of the most prominent challenges in the FinTech and business industry is money laundering. Criminals funnel illicit funds through FinTech platforms to disguise their origins and make illegal money look legal.

What is KYB FinTech?

Know Your Business (KYB) is the process of business verification while onboarding them to initiate certain sorts of partnerships. In fact, the screening procedure involves the gathering and verification of name, registration number, physical address, and ownership details. Likewise, the KYB FinTech process is about gathering the above-mentioned information about the banking and financial sector to secure entrepreneurial partnerships.

Importance of KYB for FinTechs & Banks

When FinTech institutes or banks collaborate with other corporate entities, Know Your Business checks can help in the following ways:

• Regulatory Compliance 

Know Your Business regulations, particularly after the Panama Scandal of 2016, have gained significant importance in the banking and finance sector. KYB FinTech, in this regard, allows financial institutions, banks, and other entities to stay compliant with Counter-Terrorism Financing (CTF), Know Your Business, and Anti-Money Laundering (AML) regulations. In fact, regulatory authorities require companies to conduct extensive due diligence procedures to analyze the risk associated with particular partnerships.

• Protection of Reputation

When companies engage with unverified or suspicious business entities, it significantly leaves a damaging and harmful impact on the reputation of financial institutions as well as banks. In fact, that is especially crucial for the banking sector and FinTech industry whose growth majorly relies on their market reputation. KYB Fintech processes, in this regard, help financial institution protect their integrity against such risks by making sure that all their corporate clients are legitimate and reliable.

• Improved Trust

Trust and reputation are of significant importance for FinTech institutions and the banking sector. Any robust KYB FinTech process allows organizations to enhance the credibility of financial institutions while promoting trusted partnerships among customers and partners. This is crucial in building long-term business relationships.

• Beneficial Ownership Structures

KYB FinTech rules usually require companies and financial institutions to authenticate the legitimacy of corporate clients’ Ultimate Beneficial Owners (UBOs). However, this can be a complex process as it can be difficult to identify who the UBO of an organization is, let alone authenticate their individuality. This is why additional financial companies are shifting to progressive Know Your Business solutions to assist with this screening process. 

How Does KYB FinTech Work?

Know Your Business for FinTech and banking involves the collection and verification of required business details in order to make sure that the company you are partnering up with is legitimate. Considering that, the following are the integral components of the KYB FinTech process:

• Business Identity Verification

The initial and essential step of KYB FinTech is the authentication of the business identity itself. This process involves checking out the company’s registration components, including name, actual address, and registration number, and comparing them to the official records. FinTech firms may also verify the company’s tax identification number (TIN) and any other important documents.

• Beneficial Ownership Identification

Identifying who a company’s ultimate beneficial owners (UBOs) are and confirming their identity is one of the most crucial parts of corporate verification. UBOs are persons who own or control a significant percentage of the company, typically 10 to 25% or more. This step is crucial for preventing money laundering and other financial crimes, as criminals often use complex ownership structures to hide their identities.

• Sanctions Screening

Non-compliance with KYB and AML regulations can often put companies and their UBOs on sanction lists, eventually banning them from national and international business activities. Know Your Business also involves checking whether the business or its owners are listed on any sanctions lists, watchlists, or politically exposed persons (PEP) lists. This is essential for compliance with international sanctions and preventing the FinTech platform from being used for illicit activities.

• Ongoing Monitoring

KYB FinTech is not a process that happens once. In fact, FinTech companies should conduct ongoing monitoring of their business customers to make sure they are compliant with KYB and AML regulations while not engaging in illegal activities. This involves conducting periodic reviews of the business’s operations, as well as monitoring for any changes in ownership structures or adverse media coverage.

How The KYB Can Help

Ensuring compliance with Know Your Business (KYB) regulations is essential for any business involved in international transactions or partnerships. Achieving genuine KYB FinTech compliance requires financial institutions to conduct thorough research and verification. This involves conducting due diligence on the business, screening for sanctions, and checking for any negative media coverage. At The KYB, we provide a comprehensive and real-time database of 300+ companies covering over 250 jurisdictions so you can verify the legitimacy of potential partners, ensuring adherence to regulations and security of your organization.

Ready to make compliance a fundamental part of your business operations and ensure transparency? Reach out to the experts at The KYB, and we will help you verify any business anywhere and anytime.