Identifying the legitimacy of businesses and merchants is not just a routine procedure – it's an essential protective measure for banks and financial institutions. Ensuring the integrity of the entities we engage with is crucial for money laundering prevention, fraud prevention, and financial crime prevention.
This necessity has given rise to a rigorous practice known as Know Your Business (KYB).
The Core of KYB: Verification of Businesses Leads To Compliance
KYB is a multi-layered process that verifies the identity of business entities before forming any professional relationships. Unlike the well-known KYC (Know Your Customer) which primarily focuses on individuals, KYB dives deeper by examining both the businesses and any Ultimate Beneficial Owners (UBOs).
KYB Verification: Types of Information to Collect
In today’s business landscape, knowing who you're dealing with is paramount. Therefore, adhering to Know Your Business (KYB) principles ensures compliance and builds a foundation of trust. The information that needs to be gathered to verify a business is documents and details ranging from:
- Basic business identification information
- Compliance and licensing information
- Details of Ultimate Beneficial Owners (UBOs)
- Insights into the company's relationships and context
- Sanction and blacklist evaluations
KYB Requirements: Steps to Verifying a Business
The following seven steps form a robust pathway to ensure that businesses are operating within the bounds of the law. This meticulous approach not only satisfies regulatory demands but builds a culture of transparency and trust that's integral to today's business environment.
Step 1: Understand KYB Compliance Requirements
Begin by fully understanding the local anti-money laundering (AML) & KYC laws and regulations. Familiarity with acts like the Bank Secrecy Act (BSA), the Patriot Act, and the Customer Due Diligence (CDD) Rules is paramount. It's crucial to outline the specific KYB checks required by your jurisdiction to ensure full compliance.
Step 2: Verify the Business Entity
Verification of the business entity requires a three-pronged approach. Start by obtaining a valid business name and address. Follow this by requesting tangible proof of incorporation or registration, whether it's a certificate or other official documents. Lastly, dive into the details of the ownership structure to gain a comprehensive understanding of the business's makeup.
Step 3: Check the Business Against Relevant Databases
This step involves a diligent comparison of the business names against Anti-Money Laundering watchlists. Scrutinizing these lists will aid in screening for potential risks and red flags, an essential element in the KYB process.
Step 4: Identify and Verify Ultimate Beneficial Owners (UBOs)
Identifying those who control the company or possess a 25% or greater ownership stake is key. KYC compliance checks on these Ultimate Beneficial Owners must be rigorous, entailing confirmation of each UBO's identity. It's essential to ensure that these individuals are not listed on watchlists or engaged in fraudulent activities.
Step 5: Analyze Ownership Structure
An intricate breakdown of the ownership information is necessary to fully comprehend the beneficial ownership structure. This analysis will shed light on the complex interplay of owners and stakeholders within the business, illuminating potential areas of concern.
Step 6: Utilize Automated Tools for Enhanced Verification (Optional)
For a more detailed and efficient analysis, employing technology could be a game-changer. Automated tools can perform identity verifications and watchlist screenings at a faster pace. By utilizing other data layers, a thorough, multi-dimensional analysis of the business can be achieved.
Step 7: Monitor and Maintain Up-to-Date Information
The KYB process doesn't end after initial verification. Ongoing monitoring is vital in keeping a vigilant eye on risk levels by continuously scrutinizing clients and transactions. Regularly updating customer information ensures that risk assessments remain accurate and timely, reflecting the current state of the business.
Risks of Not Verifying Businesses and Merchants
Ignoring KYB protocols is no longer an option, especially at a time when fraud and deception are rampant. Here are the 4 most common risks of not verifying businesses:
- Facing fraud
- Legal consequences
- Reputational damage
- Exposure to illegitimate businesses
Achieving KYB Verification with Fenergo
Fenergo offers a tailored approach to KYB compliance that's beyond the traditional framework. The KYB solution goes beyond compliance with a future-focused, risk-based approach. Continuous monitoring lets it concentrate on higher-risk clients, setting it apart from traditional methods.
By embracing automation and straight-through processing, manual tasks and human errors are minimized. This results in greater efficiency and a new standard for operational efficacy. The SaaS nature of Fenergo's offering simplifies technology infrastructure management, reducing the total cost of ownership. It brings an economical dimension to KYB compliance.