Did you know that 4 out of 5 organizations globally have reported fraud in the form of business identity theft? This statistic comes from the collective responses of 705 professionals across various industries such as banking and healthcare.
As India undergoes a digital transformation in its business ecosystem, Know Your Customer (KYC) and Know Your Business (KYB) play crucial roles in preventing fraud and other illicit activities that threaten the economy.
If you are a business owner looking to enter into partnerships or deals with other companies, KYB is the solution to address your suspicions on whether the company you’re about to go into business with is legitimate or not. Ready to know more about KYB? Let’s dive in!
What is Know Your Business (KYB)?
Know Your Business (KYB) refers to the process of conducting a due diligence review of a business that a company is dealing with. Unlike how KYC (Know Your Customer) deals with the verification of individual customer identity, KYB is exclusive to businesses to verify their authenticity before onboarding them into potential dealings or partnerships.
The primary objective of KYB is to ensure that the entities in question are not involved in any fraudulent activities such as money laundering, corruption, or terrorist financing and they are screened against blacklists and sanction lists accordingly.
Know Your Business verifications are also mandated to be followed in compliance with national AML (Anti-Money Laundering) guidelines where due diligence is conducted to verify the legitimacy of business partners.
Who Needs KYB?
The KYB process is typically required by law for businesses involved in financial transactions or regulated industries. Here are a few examples of entities that might need KYB:
- Financial Institutions: Banks, credit unions, and other financial bodies need to verify their identities with corporate clients to comply with AML regulations.
- Payment Service Providers: Companies that offer e-wallets and payment gateways need to carry out KYB checks to ensure the legitimacy of businesses using their platforms.
- Cryptocurrency Exchanges: Crypto exchanges must conduct KYB checks to prevent any illicit activities that take place when buying, selling, or trading cryptocurrencies and other digital assets.
- Insurance Companies: Insurers are required to conduct a thorough business verification process to verify the identities of businesses when issuing policies or handling claims.
Differences Between KYB & KYC
The table below highlights the key differences between KYB and KYC.
Why is KYB Verification Important?
The global KYB market is projected to reach a valuation of about $712.87 million by 2023 from $263.54 million in 2022, reflecting a 13.28% CAGR. This market is rapidly growing, especially considering how common fraud has become.
With that being said, here are some of the reasons why KYB is important for your business:
- Prevents Fraud: KYB can help keep your business away from fictitious or illegal entities. By verifying the identity and authenticity of the company and its owners, you ensure you’re entering into a commercial relationship that is legal and legitimate.
- Ensures Compliance: In many countries, KYB is a legal requirement mandated by anti-money laundering norms. These regulations ensure KYB compliance by preventing illegal activities such as corruption, trafficking, money laundering, and terrorist financing.
- Builds Trust: Following proper KYB procedures maximizes trust in business relationships. Verifying the identity of a partnering company and its owners is pivotal to boosting confidence and trust. With increased trust comes more transparency and integrity in relationships.
- Protects Reputation: Entering into business with illegal or fictitious companies can severely damage your company’s reputation and finances. Hence, KYB can indirectly preserve your goodwill as it protects your business from dealing with fraudulent companies.
What is a KYB Solution?
A Know Your Business (KYB) solution is a software tool that is used to verify the identities of a business and its owner and assess the risks they may present to the company. However, business verification is not the only function of KYB solutions as now companies are looking to streamline the verification and onboarding processes through automation.
Hence, a KYB solution not only aims to ensure compliance with regulations in the verification process but also aims to remove the manual burdens involved in KYB.
Requirements for KYB Compliance
When establishing a relationship with a corporate customer, regulated companies must conduct due diligence procedures in accordance with AML regulations. Here are the requirements:
- Company Information: Information includes Name, registered number, registered office, board of directors, senior management, legal and beneficial owners, description of the company’s activities, etc.
- Company Documents: Documents include articles of association, proof of legal existence, proof of registered and physical address, documents detailing beneficial ownership structure, and audited financial statements.
- Identities of Beneficiaries: Documents include proof of identity, proof of address, declaration of trust, etc.
- Geographical Considerations: Checking the company’s compliance with local regulations and cross-border operations.
- Industry-specific Requirements: Includes regulatory filings , professional licenses of key personnel
- AML Screening: Involves performing a risk assessment of corporate customers and conducting ongoing monitoring of business relationships.
7 Steps for an Effective KYB Verification Check
Here are the seven steps companies can take to perform an effective Know Your Business verification:
Step 1: Collecting Business Information
Businesses start by collecting details such as company name, registration number, tax identification number, and address.
Once collected, they can use an API webhook to generate a KYB case from within their internal systems. The information collected is saved in their internal systems, making it easier for compliance teams to begin verification processes.
Step 2: Auto-verifying Registry Data Against Business Information
At this stage, compliance teams confirm if the collected information matches with the register by auto-validating the information obtained. They can cross-check with official government databases as well to confirm the company’s legitimacy.
Step 3: Assessing the Accuracy of Registry Information
Compliance teams manually add additional information regarding beneficial ownership obtained during the verification process and generate a comprehensive summary of the case. This promotes transparency and prevents hidden ownership risks.
Step 4: Getting Dynamic Risk Scores for the Company
KYB systems can offer real-time updates on changes in the risk profile of the corporate customer.
Once it receives an update, it alerts compliance teams to conduct an evaluation. The risk scores can also be used to further automate due diligence throughout the onboarding process thereafter.
Step 5: Conducting Sanctions and Watchlist Screening
Compliance teams screen the business and its owners against global sanction lists, criminal watchlists, and politically exposed persons (PEP) to ensure they aren’t involved in any criminal activities.
Step 6: Make the Decision on Whether to Onboard or Reject
Here, the final decision takes place where the business decides whether to onboard or reject based on the risk levels.
Step 7: Perform Ongoing Monitoring
One thing to remember is that KYB is not a one-time process. Once the corporate customer is onboarded, they are subject to ongoing monitoring, which includes frequent reviews and monitoring of any changes in ownership, structure, or financial status that could impact their risk profile.
The Importance of Automated KYB Verification Checks
Regulated companies are mandated to follow a robust KYB process that ensures compliance and risk management. However, traditional KYB methods can be cumbersome and time-consuming, with verification and onboarding taking days or weeks to complete. This can hamper customer experiences and even slow down business growth.
Automated KYB solutions help here by transforming the onboarding process, which is beneficial for businesses and compliance teams alike.
These solutions play the following roles:
Improving Accuracy and Reducing Human Error
Manual KYC checks are susceptible to human errors due to the risk of overlooking some key information that is important to assess a business’s risk profile.
And in AML compliance, such risks can have costly consequences such as compliance breaches, fines, and reputational damage.
Automated KYB systems have the ability to consolidate and cross-check information from multiple sources, ensuring ease of access and accuracy for your compliance teams.
Enhancing the Speed of KYB Verifications
Traditional KYB methods require manual verification of business information, which is time-consuming and can take days and even weeks. However, automated KYC solutions have the power to speed up the verification and onboarding of new businesses.
Such speed not only gives your clients a strong start but can also help you generate revenue more quickly and maintain a long-term business relationship.
Compliance teams also save plenty of time and can focus on other high-value tasks that need their attention.
Real-time Monitoring and Updates
Risk profiles of companies can change over time, potentially increasing non-compliance risks and threats of financial crime. This is where automated KYB solutions come in to conduct real-time monitoring of your clients to ensure they are complying with AML regulations.
The solutions ensure that business information and risk profiles of your clients are accurate and thoroughly updated.
Through real-time monitoring, compliance leaders can also swiftly react to sudden or short-term changes in a business’ status or risk profile such as global sanctions, negative press, political exposure, etc.
Get Started on Know Your Business (KYB) with Neokred
With frauds becoming more prevalent, mastering the concepts and processes involved in KYB is no longer an option—but a necessity. KYB is not just a regulatory requirement, but also a vital tool that protects yourself and your business from non-compliance risks and frauds.
If you’re wondering how you can streamline business identity verification and make it more simple, look no further. Neokred specializes in KYB and KYC. As your trusted partner, we ensure you stay ahead of regulatory norms while minimizing risk and maximizing growth. If you’d like to know more about our platform’s capabilities and services, contact us today!
Conclusion
FAQs
The KYB process for banks starts with collecting information about a business after which they verify the information, monitor their transactions, ensure adherence to regulations, and prevent fraud if the company is involved in such cases.
The primary functions of KYB include preventing financial crimes and ensuring compliance with regulatory requirements.
Companies must collect various documents and information such as registration documents, address of the business, license documents, identities of the owners, operating agreements, and other helpful information that can facilitate a smoother KYB process.
KYB stands for “Know Your Business”.
Manual collection of KYB data is possible. However, it can be a time-consuming and is an error-prone process.
