The phrase "Know Your Business" (KYB) describes
the thorough investigation of a company's dealings with another business. Any
prospective business client must undergo tests to verify their identity and
authenticity in accordance with AML requirements. With this, attempts to
finance terrorism or money laundering are prevented.
Though there are some similarities between the Know Your Business (KYB)
procedure and the KYC for specific consumers, there are differences in the
specifics. Corporate clients typically engage in more transactions per year and
spend more money, along with taking on more risky situations.
What Makes KYB and KYC Different from One Another?
There are several similarities between Know Your Business
(KYB) and Know Your Customer (KYC) protocols. Their primary goal is to adhere
to AML standards in order to protect financial transactions and stop money
laundering activities. The type of consumers that a firm deals with makes a
distinction between them.
A publicly accessible customer knowledge base was reported
by more than 70%
of respondents in Poland between 2019 and 2020.
When the client is an identified individual, KYC
requirements and processes are appropriate. In addition, KYB standards have
been designed to deal with situations where the client is any kind of corporate
or business entity. Any business providing B2B services will be required to
follow these KYB regulations.
How Does KYB Safeguard Your Commercial Interests?
Any biometric identification service may have Know Your
Customer (KYC) services as its primary goal, yet the same set of solutions can
also be used to verify the legitimacy of any business entity. Banking firms
managing funds from a sizable customer base and business entities greatly
benefit from these KYB services. Banks, brokerage houses, and dealers of
investment in various institutions need to be very watchful of any company that
wants to work with them.
Major Processes of KYB
For organizations to successfully adopt a KYB programme that
detects and classifies high risk consumers, the following crucial processes
must be put in place:
Collection of Data
Organizations must carefully collect data and integrate it
into their processes even though the specific information they collect may vary
from region to region. The registration number, registration paperwork, license
documentation, company name, company address, company status, and
director/owner identities are just a few of the pieces of information that can
be utilized to locate and confirm an accurate company record.
Ownership Percentages and Structure of the Company
Organizations must identify the entities or people who are
directly or indirectly interested in an ownership position. Organizations may
have numerous owners, each of whom may have various rights and obligations,
including more influence over decisions or greater financial rewards.
Identification of the business's ultimate owner and any
significant shareholders is required by KYB checks. Business addresses,
licenses, and registrations, as well as the identification papers of the actual
business owners, should all be checked for accuracy and reported.
Verifying the Ultimate Beneficial Owners
A person who owns or controls more than 25% of the voting
rights or shares in a legal organization is known as the ultimate beneficial
owner. They have the authority to exercise considerable control or influence
over the corporation and have the power to appoint or dismiss the majority of
the board of directors.
Identifying the Company sources
These KYB checks may involve consulting the institution's
internal databases, public databases and datasets, government registers, and
customer-provided data. Nowadays, a lot of KYB procedures and tests are
computerized.
Initial inspections are crucial when beginning a new
relationship, but continued monitoring is also crucial as the partnership
grows. Similar to KYC,
transactions should be watched over and anomalous or high-volume ones should be
identified.
Checking Ultimate Beneficial Owner Personnel for AML/KYC Violations
All people found to be the ultimate beneficial owner must go
through extra AML/KYC checks. The completion of customer due diligence and the
identification of the UBO are made possible thanks to Know Your Customer (KYC)
processes and sanction checks.
Observing KYB Regulations
Organizations must use an AML framework to fall in line with
KYB laws and other regional legislation of a similar nature.According to a
survey of risk management professionals, business interruption, which include
supply chain disruption (BI), will be the top risk for companies in the United
States in 2022. Nearly 50%
of the respondents saw BI as a significant danger, and 37% thought that cyber
incidents put firms at risk. Businesses should evaluate the risk posed by their
commercial relationships and put in place an effective AML control, which
includes:
Monitoring and Screening of Negative Media
Companies should keep an eye out for their participation in
unfavorable or negative news reports that could point to their involvement in
unlawful behavior. Continuous monitoring should be done using both offline and
online sources, including classic screen and print media.
Monitoring of Transactions
A corporation may be engaged in laundering money or
terrorist funding if certain transactional patterns are present. Transactions
with high-risk nations, large numbers of transactions, or unusual regularities
are frequently warning signs of money laundering.
Screening for Sanctions
Companies are required to conduct sanctions screening on
businesses and their workers against lists including the EU, UN, and OFAC
sanctions lists.
Due Diligence
To develop and verify UBOs, organizations should conduct
adequate due diligence on the businesses with which they have ties. Companies
should perform heightened due diligence in areas with elevated AML risks,
subjecting firms to higher levels of AML inspection.
Screening for PEP
Political corruption exposure increases the danger of AML
for businesses. As a result, businesses should undergo screening to determine
whether they are politically exposed persons (PEPs).
Conclusion
Since there is always a chance that money will be laundered,
failing to comply with your KYB verification duties could result in severe penalties. Biometric
verification systems can quickly identify any attempt to falsify ownership
structure or identification documents thanks to machine learning techniques.
False credentials or private details about the top management, which is
prevalent in Shell organizations with complex management systems, can also be
easily discovered, especially in the year 2023 with the use of online
verification services. Ensure that your KYB checks and business operations are
up to date at all times to stay compliant and avoid having your company
exploited as a front for illegal activity.