7 questions to understand the KYB

Pablo Fecha de publicación: 18 de October de 2021

Companies and entities in the financial sector are increasingly global.

They serve people from all over the world, with varied backgrounds and interests.

Increasing complexity in the financial arena implies greater risks. And, consequently, it requires more complete and precise prevention measures against money laundering and the fight against fraud, which protect the entity and its clients.

At the same time, regulation is advancing by leaps and bounds, requiring this industry to allocate an increasing proportion of its budgets to implementing and adhering to AML / KYC compliance measures and customer due diligence (DDC).

The nature of financial institutions, together with the growth of crimes and regulations, demands an exhaustive control to offer safe services and comply with legal standards.

This is where the KYB comes into play.

Índice

What is the KYB?

The KYB, Know Your Business , is a tool used by financial institutions to identify and verify companies before entering into business relationships with them.

Understanding who you are doing business with builds trust and prevents future problems. In the case of financial entities, damages related to money laundering and the financing of illegal activities.

This is a mandatory verification process that is carried out during the registration of new corporate clients. It involves validating the ownership structure of companies and the identity of their owners.

The objective of this verification step is to mitigate the risks that financial institutions may be exposed to if they do not know who they are dealing with.

The KYB allows you to validate the identity of a company and understand the nature of its financial transactions, where they go, to whom they are sent and for what.

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In addition, financial institutions, payment companies or entities that carry out money transfers are required by law to identify the companies or institutions with which they operate.

What are KYB solutions?

These are generally SaaS, offering automatic, real-time data validation. These solutions or services, built from artificial intelligence and machine learning, access national and international databases, official records, lists of AML controls, among other lists, to collate the information and confirm that it is authentic and truthful.

In addition, these solutions include the verification of the identity of the final beneficiary (UBO).

More advanced services can include detailed reports on companies’ financial statements.

What is needed to verify the identity of a company?

Verifying the identity of a company is a delicate and complex task. As in the KYC , each entity has to mold and adapt the verification process to your nature.

In general, common KYB verification procedures involve:

1. Verification of the company’s registration documents

The KYB begins by reviewing the business registration and business license to confirm that it is a real and active business. The more information you provide, the easier it will be to verify the authenticity of the company.

2. The verification of the owner or beneficial owner (UBO)

In order to fully understand the context of the company, it is important to know its members. Specifically, it is crucial to identify the owners through the verification process Know Your Client (KYC) . Knowing who the UBO ( Ultimate Beneficial Owner ) is and what it does allows us to understand the nature of the network and rule out that the company could be a cover for some illegal activity.

Also, it is common:

3. Check for adverse media coverage

Researching the company implies a good understanding of its relationships with the environment. For example, knowing how they relate to suppliers or customers can be used to measure risks.

4. PEP detection

PEPs are politically exposed people. These are people in public positions, who can be vulnerable to fraud, corruption, blackmail, etc. Therefore, the risks of companies increase (especially if they are UBOs). Hence, the importance of verifying if this type of profile exists in a company.

5. Blacklist detection

The authorities collect on sanctions lists the data of individuals and companies that have carried out illegal activities (or are in it).

Finding out if a corporate client is part of these lists involves analyzing large amounts of information, checking cross-references of company names, aliases and people’s identities. However, this information is very valuable for KYB verification.

Did you know…?

In the European Union, the Ultimate Beneficial Owner (UBO) of a company is the person who owns 25% or more of the shares, has 25% or more of the voting rights, or who otherwise has control over the decisions and strategy of the company.

Why is KYB verification important?

KYB verification is important because it helps financial institutions assess fraud risks associated with corporate clients.

By its nature, working with companies or corporate clients is more complex than working with individual clients. It requires more research and usually involves different people, so the framework to be understood is broadened.

Also, we must keep in mind that KYB verification is mandatory for financial institutions. Therefore, it should be considered a priority, since not performing the KYB processes correctly can lead to legal problems and fines.

What is the difference between KYC and KYB?

The KYC verifies the identity of the end customer and the KYB verifies the “identity” of a company.

While the KYC involves verifying the identity of a customer, the KYB is its equivalent at the corporate level, as it verifies the identity of businesses.

The objective of KYC and KYB is the same: to prevent money laundering and to guarantee the safety of society.

Both are key processes in the financial and business world.

Who regulates KYB processes?

At the international level, the KYB is governed by the recommendations of the Financial Action Task Force (FATF) on AML and counterterrorism financing (CFT).

In Europe, KYB verification processes are regulated by regulations of the Payment Services Directive (PSD2) , the Anti-Money Laundering Directive (AML5) and the General Data Protection Regulation (GDPR).

According to AML5, it is mandatory for member states to provide a public UBO registry. In this way, companies from member countries can access information in other EU countries.

Additionally, financial institutions must delve into the information on UBOs, since it is considered that it may be missing from public records.

In addition, the payment must be continuous and extend throughout the entire commercial relationship.

What are the benefits of automating the KYB?

Registering new clients and new companies is an expensive process, not only economically, but also in terms of time and people.

In general, manual verification of a company takes many hours. And still, it does not guarantee that it is error-free.

Automating the KYB speeds up verification time, lowers costs, and eliminates much of the human error and inefficiencies. Also …

Fraud reduction

KYB solutions reduce counterfeit document fraud as they are capable of recognizing digital modifications.

Simplification of verifications

The KYB offers automatic access to national international databases, and extracts the necessary information.

In addition, it facilitates the tracking of users and entities because it reduces the workflow.

Resource optimization

The expenses associated with KYC and KYB are increasing. Automate KYB verification, allows staff to redistribute to more important tasks.

Constant update

The KYB must be continuous, not just at the time of registration. Opting for this automated solution allows real-time access to databases and customized reports.

The situations of the companies they change continuously and their performances need to be updated regularly.

Controlling all stakeholders in a company is a complex activity and requires extensive investigation. For example, it is common for managers to move in and out of the UBO and PEP categories.