Know Your Business[KYB] – A Foundational Component of AML Regulations

No doubt, the digital advancements have brought significant benefits to the businesses, it has also created problems for them. The increased reliance on computers and other technological gadgets has increased the risk of fraud.

Conducting business with other parties has become difficult since they lack adequate facial recognition solutions in their network to prevent that. The solutions to identity theft are present in the market and have now been discovered by businesses as well.

The regulatory authorities have also made it mandatory for businesses, especially financial institutions to become AML and KYC compliant and integrate the ID verification solutions in their business processes. Similar to KYC i.e. Know Your Customer, Know Your Business (KYB) is another important solution to prevent fraud and manage risks. 

What is Know Your Business? 

Know your business (KYB) is an AML compliant ID verification solution that prevents the company from conducting business with companies that could be a fraud and pose risks. Where KYC verifies only the customers of the business, KYB works on a broader perspective and verifies the organisation as a whole.

It verifies the company’s potential customer’s corporate information as well as its higher management’s personal information.

How do businesses benefit from the KYB solutions?

It is extremely essential for the company to protect its interest before conducting business with other companies. Financial institutions, especially, need to keep track of the companies they transfer funds with, through KYB compliance.

Since the transfer of funds requires special diligence and the companies must be aware of their income is used for illicit activities by corrupt business owners or shareholders etc. KYB helps a company determine all that.

The AI-powered identity verification solution makes sure that the company is engaged with is authentic and does not pose any risks to the business. As a customer undergoes the strict identity verification process by being subjected to the automated process of detailed verification, so does a business.

Know Your Business, very diligently, scans and monitors the company’s documents and verifies them. The verification takes place for the purpose of determining if the business is high or low risk or if it belongs to the PEP checklist. 

International KYC Regulations

Introduced by the USA Patriot Act in 2001, the AML and KYC regulations have been the standard identity verification solutions for decades. They have, ever since, played a vital role in detecting and preventing terrorist financing and other major financial crimes.

However, back then, the businesses complying with the AML and KYC regulations under the Patriot Act were not compelled by the regulatory authorities to subject the other companies they had business relations with, to the AML verification.

The gap paved the way for the criminals to swoop in with their shady tactics and disrupt the processes by concealing their identity and laundering money. 

With the advancement of technology and the surge in financial crimes, it became mandatory for every business to strictly comply with the AML scrutiny. Considering the surge, the Financial Crimes Enforcement Network (FINCEN) addressed the issue in 2016 and made another significant addition to the Customer Due Diligence Requirements for Financial Institutions i.e Know Your Business.

The effective application and the benefits brought by the KYB, another global regulatory authority i.e. EU’s 5th Anti Money Laundering Directive emphasized the implementation of KYB processes and imposed penalties for any negligence in this case.  

Requirements of KYB

 Organizations that arrange with cash moves are expected to play out a Know Your Business (KYB) check. This check incorporates confirmation of the organization enrollment, permit to operate refreshes and the immediate and backhanded proprietor/s of the organization with whom you are directing business.

Neglecting to complete Know Your Business (KYB) checks prompts the danger of openness to illegal tax avoidance and psychological warfare financing exercises.

If Know Your Business (KYB) checks are not performed, it might anytime, harm your image respectability and benefit benchmark and subject you to punishments for rebelliousness.KYB consistence incorporates business confirmation which is trailed by the accommodation of the check information and some observing stages that are basically the same as the KYC consistency process.

The confirmation data is checked against information pulled from public chronicles and computerized AML data sets.

Know Your Business practices come in helpful in this situation because they allow a company to verify the corporate information of possible clients as well as the personal information of the senior management responsible for the client’s activities.

To determine the ultimate beneficial ownership (UBO) structure, business verification for KYC or Customer Due Diligence is required.

Although different countries mandate different KYB requirements that are specifically tailored to their needs, they have general procedures that are followed globally.

KYB requires the businesses to follow adequate Due Diligence processes by collecting, analyzing, and verifying the business’s information vigilantly. Intending to prevent potential risks and fraud, KYB regulations require the following documents for inspection: 

  • Company owner’s and director’s identity
  • Company address
  • Licensing documentation
  • Registration documents 

These, however, are not the only documents required. Financial institutions with high exposure to fraud may refer to a range of both private and official resources for the purpose of conducting strict and effective KYB checks.

Hence, the need to verify and authenticate the publicly available government registries and records along with the global corporate registries arise. Aiming to authenticate the identities of the individuals associated with the business, their official documents are also verified including their passports, bank statements, and driving licenses.

KYB works most efficiently in detecting suspicious activities when it is implemented as an ongoing process.

Verifying the company through KYB solutions throughout the course of business verification services relationships saves the company from potential financial frauds. 

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