Why must Banks Implement Know Your Business (KYB) in Business Onboarding?

No wonder onboarding new clients and businesses is not about opening accounts and having signatures in today’s financial world. As the challenges grow with the rapidly expanding economic landscape, it is essential to know what kind of business your bank is dealing with before final onboarding. As per recent stats shared by the International Monetary Fund (IMF), the present rate of money laundering is 2-5% of global GDP, which is a massive amount. Therefore, implementing Know Your Business (KYB) has become more critical than ever to ensure security and compliance and prevent crimes like money laundering. Performing precise KYB checks is challenging; however, banks can collaborate with professional service providers to meet the KYB regulations. 

Know Your Business (KYB) service providers adopt advanced solutions to help banks ensure compliance with Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) regulations. Furthermore, KYB verification systems are precise and straightforward, allowing banks to maintain their industry reputations. This article discusses the importance of the  KYB in banking, a brief of the verification, and its particular benefits.

The Need for KYB Regulations

While KYC has been in the industry for decades to prevent financial crimes, criminals now exploit the corporate sector to perform illicit financial activities. Hence, these rising challenges in the financial horizon necessitated new regulations to ensure transparent transactions in the business sector, and that’s where Know Your Business (KYB) comes in. 

The Financial Action Task Force (FATF) issued new guidelines to ensure AML and CFT compliance, including the KYB compliance section. It clarified that financial companies must identify and authenticate the identity of their business clients, including the details of their beneficial owners. The FATF further emphasized the need for constant monitoring of the transaction activities of respective businesses.

Furthermore, the EU’s 4th AML Directive also sets out the requirements for Know Your Business (KYB) regulations. These conditions require banks and financial companies to keep their business clients’ registration and license documents. It further instructs the financial firms to verify the identity of business owners and their managers during onboarding procedures.

What is KYB in Banking?

Know Your Business, or KYB is a crucial element of the broader term AML or CFT regulations. As the Know Your Customer KYC regulations allow businesses and financial institutions to verify their client’s identity, KYB helps institutions verify corporate firms, owners, beneficiaries, and managers. An in-depth KYB allows banks to rest confident that their money and relationships are safe if they take this precaution and confirm the legitimacy of the company they are doing business with.

A Precise Overview of the KYB Process

Corporate Due Diligence CDD has no standard set of regulations to follow during KYB compliance. However, the specialized officials at The KYB include the following primary steps to ensure smooth and precise business verification systems. Here’s a brief overview of our KYB process:

Collection of Documents

The initial Know Your Business KYB verification stage is document collection. All the necessary documents from the company are obtained in this step, including the incorporation date, current operational status, and evidence of address. However, banks can ask for further data, for instance, the information of shareholders, beneficiaries, and details of tax returns. 

Business Verification

After gathering documents, banks or financial firms get access to all the information business clients provide to carry out verification and risk assessment of given data. The real-time authentication of businesses is performed to ensure KYB compliance.

Risk Assessment

In this phase, an in-depth analysis of the businesses, such as geopolitical risks, foreign investments, and operational risk assessment, is performed. Furthermore, the KYB officials also conduct regulatory compliance assessments to ensure compliance with AML and PEP sanction lists.

UBO Identification

The KYB’s UBO identification allows banks to get the percentage of partnerships shared by business partners. Furthermore, it allows financial institutions to authenticate the source of earnings and funds of their business clients. With accurate identification of Ultimate Business Ownership (UBO), banks can effortlessly understand the complex business structures of their clients and make informed decisions.

Requirements for KYB Compliance

Despite implementing KYC verification for years on the identification of clients, similar checks were not applicable for businesses. However, money laundering started strengthening its roots in global economies. The United Nations says $800 Billion is laundered annually worldwide. Therefore, the Financial Crimes Enforcement Network (FinCEN) introduced strict Customer Due Diligence compliance regulations.

Compliance with Know Your Business regulations allows banks to execute businesses with the entities involved in the following illicit activities:

  • Money laundering
  • Sanction lists
  • Terrorist funding
  • Taxation fraud
  • And other illicit crimes

Benefits of KYB Verification in Banks

The banks and financial firms deal with a massive amount of money daily. In this regard, an efficient KYB verification system allows banks to implement a high-tech security system. Around 90% of money laundering cases go undetected every year. It indicates that most banks and financial companies don’t possess transparent systems for Know Your Business (KYB) verification. Nevertheless, digital KYB solutions offer the following benefits to the banking sector:

Minimizes the Time Requirement

With The KYB’s business verification systems, bank and financial companies can save much time previously spent on manual business authentication procedures. Furthermore, an instant identification verification system lowers the risk of identification fraud.

Reduces Fraud

Efficient digital onboarding with KYB verification systems allows banks to access more data sources. It helps them safeguard themselves from financial fraud and keep an active track of the financial transaction activities of businesses.

Ensures Security

Know Your Business (KYB) verification procedures involve the collection of sensitive documents. Nevertheless, the KYB’s automated procedure ensures the protection of all confidential information.

To Sum Up

Compliance with Know Your Business (KYB) regulations is essential to prevent illicit financial crimes in the corporate world. As per Forbes, the financial firms were fined $2.7 Billion for non-compliance with AML and KYC regulations. The KYB’s seven-step checklist allows banks to effortlessly onboard new businesses while meeting challenges of financial crimes, including money laundering and terrorism financing. Build strong corporate ties with your clients using our specialized and streamlined KYB checks.

Sanctions and PEP Screening: Ensuring Compliance with KYB Regulations

Politically Exposed Persons (PEPs) are a more significant threat to financial institutions than traditional customers and businesses. Therefore, sanctions and PEP screening are more critical than ever to meet the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations. Recent research showed that criminals launder between $800M and $2T every year, and that’s a massive number.

Screening for PEPs and sanctioned individuals allows your business to ensure that you are dealing with low-risk entities that don’t pose any significant threat to your organization’s reputation. This article discusses the importance of these checks in the KYB process to prevent crimes like money laundering and ensure corporate due diligence.

Politically Exposed Persons: A Quick Glance

As described by the Financial Action Task Force (FATF), a Politically Exposed Person (PEP) is a person who presently is, or has been, authorized with an essential role at the state level. The United Nations Convention Against Corruption (UNCAC) further extends this description to include these prominent figures’ close associates and relatives with public roles. PEPs are at a greater risk for financial crimes like terrorist financing, money laundering, bribery, and corruption because of the nature of their work based on their role.

The following are the primary examples (but not limited to) of PEPs:

  • Present or former state officials
  • Judges and high-level judiciary positions
  • High-ranked military officers
  • Senior members of foreign political entities
  • Executives and board members of commercial enterprises owned by the government

Types of Identity Screening

A comprehensive screening process includes two main types of verifications:

  • PEP Screening to recognize and perform client due diligence on Politically Exposed Persons (PEPs) or customers with high-risk
  • Sanctions screening process to ensure that the individuals on global sanction lists are not authorized to make any financial transaction

What is PEP Screening?

Have you ever wondered about the consequences of doing business with individuals on PEP lists? Non-compliance with standard PEP regulations can put your businesses at the risk of heavy fines and, most importantly, reputational damage. That doesn’t mean you withdraw your dealings with the customers in this category. However, taking precautions with such clients is essential to save your business reputation and prevent monetary crimes.

PEP screening allows businesses to avoid precarious clients to ensure adequate corporate due diligence. These screening processes are an integral component of AML and CFT compliance. 

Here’s an example to further understand PEP Screening. When banks receive a loan application from a high-end associate who is a parliamentary member of their state, the banks will conduct a PEP screening. It helps them ensure that the respective individual is not engaged in any illicit activity and doesn’t have secret ties with criminal associations.

Identifying any possible concerns requires cross-referencing people with sanction lists and PEP databases. Financial organizations can preemptively detect and manage risks while maintaining regulatory compliance by conducting extensive PEP screening.

Sanctions & their Lists: A Brief Overview

Sanctions are the regulatory measures to limit certain activities of individuals, organizations, or countries. Government organizations and international authorities can issue sanctions lists of those involved in illicit financial crimes. The businesses use these published checklists to recognize and safeguard themselves from collaboration with sanctioned individuals and entities.

As a part of Customer or Corporate Due Diligence (CDD), sanctions lists assist businesses in making a robust layer of defence mechanism against the entities violating laws. These sanction lists comprise a collection of several different regulatory lists from substantial regulating bodies around the world, including the Office of Foreign Assets Control (OFAC), United Nations sanctions, European Union sanctions, and numerous other legislative and enforcement lists, including Interpol.

What is Sanctions Screening?

Sanctions screening is a process where members and organizations are screened against the lists issued by international regulatory authorities, as discussed above. These checklists allow businesses to verify the officials and enterprises involved in illicit activities, including money laundering, drug trafficking, corruption, etc.

However, failure to meet the regulations regarding sanctions can even lead to the revocation of business licenses or criminal charges.

Importance of Sanctions & PEP List Screening

By implementing sanctions lists and PEP list screening procedures, you may meet your country’s compliance standards and avoid penalties for failing to meet compliance. When conducting screenings, there are many lists to pick from, and it can be challenging to correctly identify someone if criminals use alternative name spellings or aliases. Regulations that apply to domestic clients may differ significantly from those that apply to foreign clients. 

Businesses can save administrative effort and remove manual work by utilizing an automated screening system. Additionally, sanctions and PEP screening can be tailored to the business’s individual requirements and risks.

Furthermore, businesses can perform ongoing due diligence checks on firms and clients with PEP designations. These checks significantly assist in protecting your company’s interests. 

Best Practices to Ensure Compliance

Integration with High-Quality Data Sources

Businesses must integrate with high-quality and up-to-date databases to ensure accurate and precise screening. It helps companies make informed decisions regarding their professional relations with customers and entities.

Implementing a Risk-Based Approach

The Financial Action Task Force (FATF) recommends utilizing a risk-based approach when it comes to PEP screening. For instance, a comprehensive and internal risk assessment helps businesses define what lies under the Politically Exposed Person (PEP) category as per foreign policies.

Performing Ongoing Monitoring

Businesses must practice automated ongoing monitoring of organizations and individuals against updated sanctions and PEP screening lists. It allows companies to check on the daily activities of individuals, officials, and organizations, meeting compliance with AML and CFT regulations.

Reliance on Trusted Platform

To ensure efficient sanctions and PEP screening processes, businesses must rely on high-technology and automated systems that immediately extract customer information. Such platforms reduce the possibility of false positives and accelerate the screening process.

Ensure Compliance with The KYB

Companies can use The KYB to simplify their sanctions and PEP screening processes while swiftly meeting AML and KYB compliance. With these automated procedures, businesses can effortlessly onboard new customers, whether a high-profile individual, organization, or foreign enterprise. Our upgraded screening systems allow corporations to avoid heavy penalties and significant losses while mitigating regulatory or reputational risk. Furthermore, The KYB’s specialized team ensures your business gets Know Your Business (KYB) services that flawlessly incorporate into the business verification systems, allowing you to make knowledgeable decisions.

KYB and KYC: Exploring the Differences and Similarities

Significant differences exist between Know Your Business (KYB) and the ubiquitous as well as widely accepted Know Your Customer (KYC) process. Unlike KYC, this process is focused on identifying suppliers and companies, which sets it apart from KYC. We aim to explain in this article what KYB is and its relationship to KYC, along with finding the difference between KYB and KYC.

The Origins of KYB vs. KYC

KYC (Know Your Customer) is usually called eKYC (Electronic Know Your Customer). Due to the need for efficiency and productivity, the digitized version was created. Digitalization brought productivity, lower costs, and zero bureaucracy to previously paper-based KYC processes. Until KYB and KYC were digitized, financial fraud was at its peak. 

Exchange regulators found that new customers needed to be properly vetted and that users were opening accounts without engaging in sufficient background checks. A security risk was posed because the system was overloaded, making it vulnerable to money laundering and fraud. Authorities also reported that the companies were unable to handle the “dramatic and unexpected growth” of the business.

The United Nations Office on Drugs and Crime (UNODC) estimated that approximately 2 to 5% of the world’s GDP is laundered each year, exceeding $1 trillion. According to a survey, nearly 70% of organizations that experienced fraud pointed the finger at external parties, whether they acted alone or with internal sources.

What is KYC and KYB Verification?

KYC refers to the identification and verification of customers’ identities by certain companies obligated to comply with the regulations in place. A user is registered as a company’s customer to prevent money laundering, tax fraud, and terrorist financing.

Digital KYC (electronic Know Your Customer) refers to digitalizing the KYC process. All industries have benefited from digitalization in terms of increased productivity, cost reductions, bureaucracy eliminations, and waiting times being reduced from weeks to minutes.

KYB and KYC both follow AML standards. With AML5 or (5AMLD) and eIDAS, KYB/KYC processes are digitalized, which allows businesses and clients to onboard digitally in a timely manner and with total security.

Difference Between KYB and KYC

KYB and KYC processes share many similarities. Financial transactions are made safer by implementing AML regulations, which prevent money laundering activities. The major difference between KYB and KYC is its dealing. 

KYC regulations and processes must be followed whenever a customer or consumer is identified. Regulations relating to KYB have been developed in addition to addressing businesses and corporations as customers. The KYB regulations will be applicable to any company providing B2B services.  

Know Your Business Meaning and Requirements

The KYB business verification services includes every feature we have discussed in defining the KYC process. A Know Your Business process identifies the legal representative or responsible individual for a business, unlike the standard process that identifies potential clients.

Most B2B (Business-to-Business) companies check the background of their clients and work with organizations committed to preventing money laundering and other tax crimes, as well as ensuring that security and guarantees are provided. It is, however, legally required in most instances, as in the financial sectors, banks, etc.

The legal representatives of these businesses are required to identify them and verify their affiliation with the client company, professional service businesses. The companies that work with SMEs and freelancers are required to implement KYB practices as well.

The KYB process is similar to KYC, in that digital KYB services reduce costs, eliminate bureaucracy and facilitate the development of safer and more reliable identification methods than traditional ones.

Know Your Business (KYB) Checks and the B2B Environment

Business Know Your Customer (BKYC) or Know Your Business KYB are relatively recent terms. Since various regulations have been announced in many states worldwide, such solutions have become increasingly popular.

Digitalization and delocalization of processes have caused B2B companies to need Know Your Business procedures in order to sell products and services to them. By reducing administrative procedures costs and times, simplifying previously time-consuming and complex processes, and protecting and ensuring adequate legal support for their B2B clients, they need to develop internal compliance policies pertaining to customer and supplier relationships that are broader in scope.

KYB and KYC Checks: How Do They Work?

KYB and KYC checks are also known as customer due diligence. They help a company verify a client or customer’s identity. For this purpose, the firm needs information about the individual or company and then cross-references it with other reputable sources. If it’s a business being verified or a person, the information needed will certainly differ.

Data for KYB

A KYB character report is required for businesses and organizations that hold a quarter share, as KYB solutions specifically target businesses and organizations. In order to verify company, the following information is required:

Data for KYC

KYC requires banks and financial institutions to prove their identity and address. Banks use these records to assess a customer’s risk level and verify their financial situation. For KYC, the following data is necessary: 

The Final Results

Regulatory businesses utilize KYB and KYC processes that require hard copies of ID documents, such as passports and driving licenses.

Keeping your KYB and KYC up to date is not just a regulatory requirement. You must know what risks your business faces in an ever-changing world of cyber security. Your business could face severe problems if you don’t use the right tools and conduct a risk assessment.

Don’t waste your time and energy on long and energy-consuming research. Invest in The KYB Business Verification services now and avoid the consequences, fines, and untrustworthy partnerships. Ultimately, you deserve to work with the best KYB service provider, and that is exactly what you have found.

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