Know Your Business: It’s important to know who you are doing your business with. You may know the company and name of the person you are dealing with to have a basic understanding of that business. But do you really grasp everything about who runs the business, who is in charge of everything and how does the business operate?
What if the proceeds from your business are directed into bank accounts of corrupt business owners/shareholders, terrorism financiers or money launderers? It’s more crucial for businesses offering their services to other businesses instead of individual consumers to be more vigilant in their customer onboarding process.
For this purpose, Know Your Business (KYB) practices are employed to verify the corporate data of their potential clients and the personal details of the higher management responsible for the operations of that client’s company. KYB is crucial to identify the Ultimate Beneficial Ownership (UBO) structure.
What does KYB mean?
A thorough Know Your Business check allows corporate businesses to determine whether the business they are doing with is, an authentic business entity or a shell company that is only present on paper. KYB services include performing AML checks for businesses along with proper document verification as stipulated by the regulators.
In the UK, these regulations are defined by Electronic Identity Verification (eIDV) and 4th AML Directive by the European Union. These directives dictate the KYB regulations to corporate entities. In the US, Customer Due Diligence (CDD) measures are being imposed to determine the true ownership of a business.
Businesses face stricter regulations for the identification and verification of customers before onboarding them. To prevent financial crimes, the 4th AML Directive puts emphasis on rigorous audit trails. For this purpose, digital verification services have proven to be significantly effective in following regulations.
Similar to Know Your Customer (KYC), KYB service providers verify businesses by obtaining official commercial register data using APIs. By employing the registration number and jurisdiction code of a business, an efficient digital KYB service can collect confirmable information for the business.
KYB checks include a number of steps which are explained below.
A business search includes background data of the company which covers the registered address, current status, UBOs, trademark registration, and company type, etc. KYB service also includes a financial summary of the company’s operational accounts.
Business filings provide instant, verifiable data about the company’s financials, access to financial statements and link to annual accounts, shareholder lists, etc.
Business statements help companies remain well informed about the changes in management and organization of linked businesses. Any change in directors or beneficiary owners should be known to your business.
Detailed information on corporate structure also presents insights into parent entities and the list of company subsidiaries.
Is KYB Beneficial For Your Business?
Digital verification services are based on artificial intelligence and machine learning which makes these services extremely efficient in determining the true identity of a business but can also check for financial dangers attached to that business. These services are remarkably helpful for financial institutions handling funds of large customer base and corporate entities. Banks, brokerage firms and dealers of various investment organizations have to be particularly alert against every business entity that wants to partner with them.
Like KYC, Know Your Business processes have been remarkably improved by the use of automated verification systems. Electronic identity verification (eIDV) gives proper analysis on any name of UBI that KYB brings up. With the use of APIs, the data capture process is made smooth. Through the combination of APIs and data-driven systems, it becomes exceptionally easy and quick to retrieve information, share it with the concerned parties, coordinate response and flag cases for manual review.
Effective KYB services will use similar processes to automated KYC solutions. Due to the complexity of KYB, more compliance is demanded but the advanced technology of KYB will allow for greater scrutiny and better compliance.