Mitigating Business Verification Complexity with The KYB in Mena Region.

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Difference between KYC and KYB

27 September, 2023

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Every year, $800 billion to $2 trillion is laundered globally, and the US makes up 15-38% of the amount. This is alarming and urging businesses to implement AML compliance policies to prevent money laundering and other financial crimes. 

Know Your Customer (KYC) and Know Your Business (KYB) are the two types of Anti-Money Laundering (AML) checks, essential to maintain the financial system’s integrity by mitigating the risk of fraud.

1. Definitions and Overview

KYC 

KYC is the process that financial firms and other businesses use to verify individuals who are their potential clients. This comprehensive verification process ensures that all the money in circulation is legitimate to avoid theft and other types of crimes. 

KYC verification is crucial for companies and their customers. The primary goal of the online KYC procedure is to:

  • Keep scammers away from exploiting the firms’ financial system and damaging the economy.
  • Comply with the regulations demanding customer verification to know that they are who they claim to be.
  • Figure out the level of risk that a client can pose and decide whether or not to onboard them as a client.
  • Enhance the credibility of businesses and the financial system as a whole.

KYB 

KYB is the process that firms such as banks and other financial institutions use to validate all relevant details collected from businesses to be onboarded as their customers. It is vital to prevent money laundering, terrorism financing, and other crimes, especially those involving transferring or hiding money illegally.

The main objectives of the KYB verification is to:

  • Safeguarding the financial system and the economy from becoming a target of criminals.
  • Abide by local and international regulations that mandate customer verification.
  • Assess the level of risk and suitability of every company for different financial services and products.
  • Maintain a positive image of the financial firms.
KYB knowledgebase infograph 4

2. Components

KYC   

The main components of a typical KYC process include:

  1. Customer Identification: This involves collecting and verifying customer details, such as name, date of birth, address, and official identity documents like a driver’s license or passport.
  2. Customer Due Diligence (CDD): This is the procedure of assessing the customers’ risk level based on information about their source of income, past transactions, jobs, etc. High-risk clients are scrutinized more closely through conducting Enhanced Due Diligence (EDD).
  3. Ongoing Monitoring: This involves continuous monitoring of any odd or suspicious behavior that might indicate an illegal activity, such as money laundering or terrorist financing

KYB  

The main components of a typical business verification process are:

  1. Business Identification: This involves obtaining and verifying the company’s data, its tax identification number, and other supporting documents to check its ownership and legal status.
  2. Beneficial Ownership: Identifying and validating the individuals who are its Ultimate Beneficial Owners (UBOs) since they have the power to affect transactions and corporate choices.
  3. Risk Assessment: Analyzing the risk involved in doing business with a specific firm, considering aspects like its location, standing, and track record.
  4. Ongoing Monitoring: This entails constantly tracking business contacts for any changes or actions that signal possible dangers.

 

3. Regulatory Framework

The regulatory obligations and implementation rules of the KYC and KYB can differ in many ways.

Maintaining KYC compliance is straightforward as the regulations are implemented longer and have evolved over the years. Standards are developed to define how the KYC process should be performed. For instance, companies in the EU are mandated to have a video recording of the procedure; more than static passport scanning is required. In Germany, KYC can only be conducted with video interview verification.

On the other hand, maintaining KYB compliance is challenging as the regulations are not as well-defined, and there are vast differences between the procedures to be followed by KYB providers. The development of a proper standard is still in process. There needs to be a proper order to do things or any given template that businesses could easily follow.

For KYB and KYC verification, regulators and compliance teams ensure that businesses follow the rules to combat financial crimes like money laundering. Regulators can check who is complying with regulations by performing inspections or audits, and businesses are responsible for having robust KYC and KYB solutions in place.

Automated KYC and KYB Compliance Solutions

Verifying identities and checking ownership structures and official documents are time-consuming tasks for any business when done manually. This is why companies are deploying automated KYC and KYB solutions for faster and more efficient verification processes. The AI-powered verification solutions collect, analyze, and manage piles of data, reducing time, costs, and human error. As a result, this gives customers a positive experience and aids businesses in building a positive brand image in the competitive world market. 

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