The first thing that we do while interacting with anybody is check if they are the right fit for us. This goes from in-person dealings to our purchasing habits. We practice this check even in the smallest of our everyday encounters. Then how can business owners neglect to verify the identity of the business entities they are going to deal with. The easiest way to get information about businesses nowadays is to check them on Google. But making a decisive assumption solely based on google check is not sufficient. Compliance professionals made a regulatory check Know Your Business (KYB) to verify the identity of any business. Know Your Business services are also in practice by businesses doing KYCC.
The world is becoming digitized now. With technology impacting everything today is taken not less than a blessing. Along with many plus points, it has its own fair share of negative points as well. Online fraudsters also fake to be e-merchants to benefit themselves as much as they can. In this scenario, it is difficult to distinguish a legit business entity from a shell company. Unregistered companies without proper workplaces are fooling the consumers in the market. In order to counter this, banks are spending more than $48 million on due diligence and KYB services.
From KYC to KYB
Businesses do verification checks before onboarding customers through knowing Your Customer (KYC) services. It is mandatory to identify individuals to make sure that no fraudster or bad actor pollutes the name of the business. As customers’ identification is an integral part of any business, similarly verifying the entity you are going to work with is also essential to confirm. Regulatory authorities are working to make the process seamless.
Identifying the business and verifying its owner is the keystone for authenticating any entity. Like KYCC, kyb checks is also operating on certain measures that are checked while doing verification of businesses and these are:
● Registration number
● Legal name
● Verified address
● Current address
● Basic operational purpose
Vendors are required to verify if businesses or the third parties they are going to deal with are involved indirectly or directly with money laundering or terrorist financing. It is also important to note that the transactions processed through your business are not directed to corrupt owners or are used in money laundering or terrorist financing. Being a business owner it is important to keep this information in check to confirm your sustainability.
Challenges in KYB
Traditional verification systems for businesses used to be a manual process and includes a long, tedious process that also has chances of error. Therefore, the integration of an automated system was the need of the hour to have robust Know Your Business services.
Compliance authorities are required to have a lenient set of laws in their format to ensure law-abiding possibilities for companies.
The main challenge is to access the information of the beneficial owner, especially in countries that do not require businesses to submit relevant documents for verification. Lack of shareholder information can hinder in varying the business entity which is important to prevent money laundering and terrorist financing. Shell companies trap the customers and other business entities by making themselves appear as legal entities. It is harder to know who the authentic person is and who to believe when it comes to dealings with online entities.
In some regions, companies do not fall obliged to comply with the identity verification services which is against the Financial Action Task Force (FATF). This requires the regulatory authorities to review their rules and consider that businesses are running globally and at international levels. Considering the rules different countries have for their vendors, it becomes a bit difficult for them to comply with the main regulatory authority.
Know Your Business process
It is the key step to keep your business from having any unfortunate experience due to any bad actor. Some steps are necessary to go through for affirming the KYB compliance as follows:
1. Business Search
It is a simple and the most basic stage of getting to know the business. The name of the business entity, their registered address, current address, company type, and UBOs are verified at this stage.
2. Business Filings
Financial information regarding the company is checked at this stage. Complete financial information of the company including financial statements and their sources and links is identified.
3. Business Statements
Business statements offer the statements of the registered businesses and are important to consider when businesses undergo change. It is imperative to have them checked because of the changing management in the company. A new management staff means changing the company’s statements and to make these changes older company statements are required.
4. Business Networks
Detailed information of the business gives perception on the business network with other companies (parent or sister companies). It also gives information about which country the business is located, the nature of the business activity they are undergoing, and the nature of transactions they are performing.
As KYC is important in verifying the identity of the customer, KYB is also essential for businesses to verify they are going to deal with authentic other entities or third parties. Knowing the business entity is valid will secure the vendor from facing various frauds like money laundering, and terrorist financing.