Whether your company operates in the finance industry or you participate in business transactions with other companies, you must comply with anti-money laundering regulations by conducting Know Your Business (KYB) checks. While KYB procedures share some similarities with the Know Your Customer (KYC) process, there are a few key differences that set these two verification checks apart.
This blog covers everything you need to know about the KYB process, from how KYB came to be to how to conduct KYB procedures and streamline the process with the power of automation.
What is KYB (Know Your Business)
Know Your Business (KYB) is a vital component of anti-money laundering (AML) and counter-terrorism financing (CTF) compliance. KYB procedures refer to the compliance checks that businesses and companies are legally obligated to perform in order to validate the identity of businesses and protect themselves against corrupt business owners, financial crimes and money laundering activities.
Much like Know Your Customer (KYC) processes, KYB compliance is a key aspect of AML regulations and helps to prevent money laundering and other financial crimes. With that said, the main difference is that KYB focuses on the owners, shareholders, suppliers and other company stakeholders rather than individual customers and clients.
KYB Requirements
As part of KYB regulations, businesses are required to verify information and data relating to other business entities before establishing business relationships. This allows the company conducting the KYB checks to determine that the other businesses are not shell companies and are in fact legitimate businesses.
As part of this preliminary process, businesses must review information and business records, including:
The company name,
The company address,
Business registration documents, and
Licensing documents.
Firms must also confirm the identity of any ultimate beneficial owners (UBOs) and their personal information before they establish a business relationship. UBOs refer to shareholders that have 25% of the business profits or greater beneficial ownership in a company, along with directors and owners. To verify the UBOs, a business must assess their name, legal address and a form of official government documentation, like a passport or driver's license. It's also essential to ensure that these individuals haven't participated in suspicious activity and aren't listed on any international sanctions lists.
The History of Know Your Business Compliance
While KYC regulations have been a standard feature of anti-money laundering regulations globally for decades, KYB processes are a much more recent addition to the world of AML compliance. Prior to the introduction of AML regulations in the US back in 1970, financial crimes and money laundering activities were at an all-time high.
In a bid to combat financial crimes, the Bank Secrecy Act (BSA) was introduced, which encompassed a number of common banking regulations that are still observed today, including tracking suspicious activity, foreign transaction monitoring and reporting cash transactions that exceed $10,000 a day.
These AML guidelines were then incorporated into the 2001 USA Patriot Act, which was enacted in the wake of the 9/11 terrorist attacks to prevent money laundering and terrorist financing. This new Act required banks and other financial institutions to follow stringent regulatory requirements when it came to their corporate customers, like collecting personal information and monitoring their financial transactions. However, businesses weren't subject to the same level of scrutiny, which provided criminals with a loophole to continue illegal financial activities.
This blindspot was revealed as a result of the Panama Papers scandal in 2016, which attracted adverse media coverage and prompted the US Financial Crimes Enforcement Network (FinCEN) to review the Patriot Act and introduce Know Your Business (KYB) rules under its Customer Due Diligence (CDD) Requirements for Financial Institutions. Since then, other financial regulators across the globe have followed suit, introducing similar regulations to ensure financial institutions perform rigorous business verification.
What Type of Company Needs KYB Compliance
KYB compliance isn't strictly limited to regulated companies and firms operating within the finance industry. In fact, there are a number of different companies and institutions that are required to comply with AML/CTF regulations, including precious metal dealers and insurance companies, as well as suppliers, vendors, and business partners. Ultimately, any type of business that conducts business transactions with other companies must perform KYB checks.
Here are just some of the businesses and companies that are required to implement KYB procedures:
Asset managers,
Auditors,
Cryptocurrency marketplaces,
Estate agents,
External accountants,
Financial institutions, including banks, credit unions, mutual funds, trust funds, and brokers,
Gaming and gambling operators,
Notaries, and
Tax agents and advisors.
KYB Process and How to Comply
While KYB procedures differ slightly depending on the jurisdiction, most KYB regulations require businesses to evaluate the level of risk associated with their business relationships before they're established and throughout the duration of the relationship. With this in mind, a rigorous AML strategy should include the following stages:
Due Diligence
Regulated businesses must employ suitable due diligence procedures to verify business identities and establish the business's UBOs. This allows businesses to then determine the level of risk associated with the business partnership. If a UBO poses an increased business risk, firms should employ enhanced due diligence to manage the risks and ensure compliance.
Ongoing Monitoring
Suspicious financial transactions, including transactions with high-risk countries or large-volume transactions, may indicate criminal activity. Firms should implement continuous monitoring to mitigate any potential risks.
PEP Screening
Firms should assess businesses and companies involved with politically exposed persons (PEP). Businesses with a positive PEP status may pose a higher risk as they may be exposed to political corruption, which can indicate a greater money laundering risk.
Sanctions Screening
Businesses and their beneficial owners should be screened against relevant sanctions lists and government watchlists.
Adverse Media Monitoring
Continuous monitoring of adverse news and negative media stories can provide insights into a company's reputation and can indicate any potential involvement with financial criminals and money launderers.
By conducting these kinds of KYB checks, businesses can stay compliant with relevant AML regulations and mitigate potential money laundering risks.
How to Streamline The KYB Process
The KYB verification process requires businesses and companies to collect, analyze, and manage vast amounts of data on their individual customers and corporate clients. KYB procedures can be lengthy and tedious if done manually, not to mention the risk of human error. However, with the rapid development of technological solutions, there are many automated KYB solutions. These electronic identity verification tools allow businesses and their employees to turn what was once a tedious onboarding process into one that takes seconds, thanks to automation.
Data Zoo's business verification solution allows you to conduct KYB checks and onboard your business partners in seconds, not hours, with real-time verification. Our supercharged KYB solution conducts seamless business verification checks without adding friction and frustration. With Data Zoo, you can establish confidence in your business relationships by verifying business partners against trusted data sources, including government registries, business registries, and reliable public records. Streamline your compliance and stay ahead of the ever-evolving regulatory landscape with our end-to-end KYB solution.
Get in touch today to book a free demo with one of our experts to learn more about how Data Zoo can help you streamline your KYB process.