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Know your business or KYB refers to the due diligence process for businesses and corporate clients or partners. When a company decides to work with another business, it evaluates the risk and fraud associated with the counterparty, considering the financial transactions between them. This is where proper KYB onboarding helps. According to a recent report, companies that successfully complete KYB compliance for onboarding save an average of $1.45 million in compliance costs per year. Globalscape reported that organizations lost roughly $4 million in revenue due to a single non-compliance event and failure to use KYB compliance during onboarding. 

What is KYB Onboarding?

KYB onboarding refers to the process that helps validate that the company you are joining hands with is legitimate and exists in the real world. KYB onboarding conducts background checks on a counterparty to analyze it from financial, economic, and other perspectives. Nonetheless, KYB onboarding verification is also important to comply with the AML and KYB regulations. KYB onboarding not only exhibits the real identity of the company. But also informs about financial and legal risks associated with the company owner and partners.

KYB Merchant Onboarding

KYB merchant onboarding verifies the legitimacy of the business you are associated with and its partners, merchants, vendors, clients, partners, etc. It also validates that counterparty doesn’t hold any legal or financial risks. It protects businesses against shell or void companies, builds real connections, prevents frauds, scams, penalties, and safeguards the business reputation while enhancing trust as well as reliability. 

Money launderers and fraudsters establish shell companies to defraud the real businesses. These businesses only exist in the digital realm or papers and have no goods, services, location, or infrastructure. They mainly exist to scam legitimate businesses, conduct frauds, and conduct suspicious transactions. Protecting your organization against these paper-fit companies requires fool-proof onboarding processes that verify and validate the whole existence of the counterparty. 

KYB Client Onboarding

Before onboarding the client, evaluating the risk with them is essential. Some clients might possess high risk, and collaborating with them can cost businesses a fortune.  KYB client onboarding verifies that the person your company is about to join hands with contains no risk or low risk. 

KYB onboarding checks and risk evaluations are performed when a client provides information. The client is checked against the sanctions and watchlist to ensure they are not involved in money laundering or terrorist financing. When the risk association reveals little or no risk, the client is considered safe to work with. When a client represents a high risk, the system automatically flags it as a threat, removing it from the list but saving the data. If a corporation still wants to onboard the red-flagged client. It can manually allow access to it, but the ongoing KYB checks will continue to analyze and monitor it in the future. 

KYB Onboarding Document

The first stage is to collect the necessary KYB onboarding documentation to establish the company’s legal existence. That may include:

• Business registration number
• Legal name
• Address
• Operational status
• Key personnel
• Incorporation date
• Financial statements 
• Business History

Once the documents are provided, the business profile is assessed against the sanction or watchlists, and risk is determined associated with them. The KYB onboarding process also evaluates who owns and controls the business. Once the company screening is done and documentation is screened, the business is either onboarded or denied access. After the KYB onboarding, the process continues. To mitigate risk and secure the digital environment, ongoing KYB monitoring and adherence to the updated compliance are practised. 

Manual Vs. Automated Onboarding 

Manual or traditional KYB onboarding necessitates a large amount of resources; institutions must have a dedicated team that is slowed by outdated methods. Nonetheless, corporate clients can take weeks to onboard effectively. Human error also impacts the company’s onboarding operations. Mistakes arise when dealing with massive amounts of data and information, exposing firms to danger. 

The most challenging aspect of the manual KYB onboarding process is keeping up with the constantly changing regulatory landscape, especially when multiple nations and complex jurisdictions are involved. The KYB process’s regulations are complex and continually evolving.

The KYB process in automated business onboarding will employ worldwide databases to generate new entries for corporate accounts. It also updates about UBOs, such as whether they are sanctioned, Politically Exposed Persons (PEP), have been the subject of negative media stories, and other associated background checks – all of which may be automated. This saves compliance experts time and allows them to develop a more trustworthy image of a company’s structure.

Challenges in KYB Onboarding

When it comes to Know your business onboarding, businesses confront several issues. The continually shifting regulatory landscape presents complications that firms must traverse to remain compliant. Furthermore, the large client base and different business areas necessitate unique approaches to verification. Manual processes frequently result in ineffectiveness, delays, and cost increases, while the danger of fraud as well as noncompliance remains high.

Best Practices in KYB Onboarding

To streamline KYB onboarding, businesses can implement the following best practices in 2024:

Create KYB Policies and Procedures

Company policies and processes should be documented to aid in effective financial management, minimizing risks, and internal operational alignment. These documents should also be evaluated regularly to ensure they remain updated with the firm’s external environment. 

Utilizing Technology and Automation

KYB onboarding, data analysis, and risk assessment can be considerably improved by adopting digital identity verification technologies and utilizing advanced technology as well as artificial intelligence (AI). Electronic document verification for onboarding can help to speed up document processing while reducing errors.

Implement a Risk-Based Approach

Risks linked with business connections might evolve due to the ever-changing nature of corporate ecosystems. Firms can respond to these developments by focusing on entities that offer a higher risk with a risk-based KYB approach. Risk-based KYB screening measures can better detect and prevent potential problems proactively because not all business partnerships carry the same level of risk. 

Data Validation

Establishing solid processes for data gathering and validation during KYB onboarding is critical. It’s important to ensure the accuracy and credibility of client data by checking beneficial ownership. Even after onboarding, regular audits should be performed to ensure data integrity.

Continuous Monitoring 

Implementing ongoing consumer activity monitoring and undertaking periodic risk assessments is essential. Businesses should invest in technologies that alert them to suspicious activity or changes in corporate data. 

2x Faster KYB Onboarding

Firms can use The KYB to simplify their corporate screening and onboarding approach while increasing productivity as well as conversion rates. With an automated KYB workflow, businesses can onboard the other companies 2x faster while staying compliant. Our KYB onboarding system provides real-time access to over 250 data sources and operates in over 250 countries, states, and complex multi-jurisdictional environments. Regardless of industry, an executed onboarding system should serve as your entry screening point before creating any strategic relationships with other organizations.

No wonder businesses are in the modern digital era since they don’t know which hand to shake and which one to avoid. Before forming any sort of partnership with other businesses, it is important to ensure it is worth the time and effort with the KYB checks. This not only authenticates and validates that the company is legitimate but also ensures safety, adherence to compliance, avoidance of guilty penalties, and security of reputation. Conducting accurate KYB checks is challenging, but with the right provider, ensuring compliant KYB verification checks is easier than ever. Here, the experts at The KYB use the seven-step kYB check strategy to ensure business verification. Our KYB verification checks are made simple, and easy, as businesses are verified in real-time and within budget.

In this article, learn more about KYB checks, their importance, the necessary documents needed for verification, and how to verify the business within your dedicated time and budget. 

What are KYB Checks?

KYB checks are mandatory for any financial institution or business under regulatory compliance. KYB checks help verify the business identity and additional information, like their association with any financial crimes or link to fraud. These KYB checks involve verifying the identity of non-individual customers such as companies, associations, or trusts. 

Importance of KYB Checks

KYB checks are essential in business verification to mitigate risks associated with money laundering, terrorist financing, proliferation, and other financial crimes. KYB checks allow businesses to check the identity of the company you’re engaged to or will partner up in the future. It verifies that the company exists and that you are not inadvertently doing business with entities or have ties to a terrorist organization and are involved with criminal activity. It also verifies the former history of fraud or other financial crimes. 

Information Needed for KYB Verification Checks

The KYB process involves collecting and analyzing business data to verify businesses’ owners and financial activities. It Includes: 

Business Registry Information

The primary information for KYB verification checks includes collecting data about the business, including its structure, location, nature of business, shareholders or directors, business license, and other relevant information. 

Article of Association

Article of association is an important part of KYB checks, which collect and analyze business operation’s incorporated rules or regulations, purpose, ownership records, and structure. 

ID Documents of Associates

Another essential document is collecting and analyzing identity documents of anyone associated with the business. These include the identity-related documents and other records of owners, associates, partners, directors, ultimate beneficial owners, and anyone directly or indirectly associated with the business. These documents may only be government-issued documents like national identity cards, passports, driver’s licenses, registry of birth, travel documents, and birth or adoption documents. 

Financial Information

Another important KYB check includes checking the financial information and sources of individuals associated with the business and their organization. The financial statement provides insight into the business’s financial health and helps the compliance provider or auditor evaluate the company’s stability and act accordingly. 

Contracts and Agreement

Lastly, KYB checks include collecting and analyzing business contracts or agreements with suppliers, other vendors, clients, customers, and partners. It tells the nature of the business, its relation or structure with other firms, and the risk associated with the companies. 

Seven Steps to Efficient KYB Verification

With expert assistance and the right KYB solution provider, performing KYB checks is as simple as these seven steps, starting with the basic information collection and ending with continuous monitoring. The detail of each step is elaborated as follow:

Data Collection

The first and most important step is data collection. The KYB process collects basic information about other business entities or individuals. This includes the company’s name, location, registration number, contact details, and additional relevant information needed to verify the company’s existence and is legitimate. This information is obtained from the business’s customers, registration documents, or public corporate registries. These registries include ASIC in Australia, ACRA in Singapore, and Companies House in the UK. 

Verifying Existence

After collecting the necessary documents, scrutiny is performed, and the records are validated. Documents verify that the business you might be partnering up with exists and the provided information is accurate. This is verified via the provided documents; the auditory or the service provider matches the paper with the records and verifies its existence. 

Understanding Ownership Structure

Another vital part of Know Your Business checks is understanding the business hierarchy, ownership structure, roles, and responsibilities. It includes identifying and verifying the directors, shareholders, partners, controlling parties, and anyone directly or indirectly involved in the business. This helps companies identify the risk they pose, identify it timely, and mitigate the risk associated with the management or ownership of the business. 

Add UBO’s Information

UBOs are anyone who directly or indirectly holds 25% or more business shares. Once the UBOs are identified, the next step is verifying them. This can be done by verifying with databases, auditors, or a KYB compliance service provider. The UBOs can be verified independently against the sanction lists or databases, and businesses can timely identify the risk score a UBO may have. 

Risk Screening

Once businesses are verified, they are given a low to high-risk score, marked as a red flag. If the company is on a sanction, black, or grey list or has a record of money laundering, fraud, or another type of criminal act, it will automatically be given a high-risk score. The risk score evaluates whether you should form a business relationship with or cut ties with that particular company. Some KYB providers also provide individuals’ risk assessments that inform whether you should onboard that person or not. Since all the process is automated, the high-risk business profiles are automatically rejected or removed. Nonetheless, manual involvement is needed if someone may want to consider working with the red-flagged companies. 

Onboard or Eliminate

Once businesses have gone through all five steps, it comes time to decide whether you want to onboard that particular partner, shareholder, director, client, and business or remove it from the options. Even if you remove the company, the data is kept safe and up-to-date in case the loopholes are filled, and you can partner up in the future. 

Perform Ongoing Monitoring 

Onboarding or eliminating the option doesn’t end things. Businesses need proper monitoring since the data keeps changing, and companies must stay updated. Once the partner, another company, or director, etc., is onboarded comes the ongoing monitoring where they go through the same procedure after weeks or months and verify that they are legitimate. If, during the monitoring, they pose a low-risk score, they go through due diligence; on the contrary, high-risk profiles go through enhanced due diligence.  

Bottom Line

KYB checks are essential in any compliance program. They help mitigate the risk of terrorist financing, money laundering, or any other illegal activity. KYB checks verify that the company you are dealing with or associated with is legitimate. The KYB seven-step checklist helps businesses onboard businesses or partners confidently, saves time, is available in 225+ countries and states, and has data of our 225+ sanctions and databases that verify instantly while staying compliant and within budget.