KYB Due Diligence Leverage Business Verification in Financial Institutes

Financial fraud and money laundering are constantly increasing with the latest technology. 98% of cyber frauds happen in the banking sector. From these, 3.5% of B2B businesses lose their revenue because of business fraud. Most of these scams are related to online identity fraudsters. They disguise their illegal money by bypassing the security system and counterfeiting their personal information. 

Financial institutes need an adequate business verification process with 100% accurate results to stay safe. KYB’s due diligence is the derivative that can protect them from identity theft scams. Most of these rigid measures are designed by international law enforcement agencies to combat money laundering and terrorist financing. Compliance with these obligations will protect financial institutes from scams and streamline onboarding. 

What is KYB? 

Before compliance with the business verification regulations, organizations must learn what KYB is and how to comply with it. The KYB or know your business are measures that align with the anti-money laundering regulations. For compliance, financial institutes gather business information and attest their registry documents through various strict measures. This process ensures the financial organizations uncover the hidden identity of the company they are working with. It assists them in guaranteeing they are not benignly used to trade illegal money. 

Why is KYB significant? 

KYB onboarding has a vital role in financial institutions because it protects them from financial fraud related to their economy.  Moreover, without the entire KYB checks, financial institutes can not uphold international and national regulations. The banking sector starts a new partnership with any corporate KYB process to transparent the whole procedure. 

Difference between KYB & KYC 

The KYB and KYC are perpendicular to each other; one is for business verification the other is used to verify individual customers. For the KYB, you verify the companies and their ultimate beneficial owners. On the other hand, KYC is only for the customers and proving they are legal. Meanwhile, the KYC, the financial sector, gathers information about the individuals, and for KYB compliance, verifies the companies’ registration documents. 

How KYB Verification Works? 

The derivatives of KYB’s due diligence are disturbed by national and international obligations. Most of the time, it also changes according to company policies and the nature of the business according to financial institutions. Given below are prominent steps for KYB due diligence

Collection of company’s data and verification 

To ensure that the company you are going to start business with exists in real words because 50% of bogus businesses are only registered on paper. They do not have any type of physical position or location. So, to clarify this, their registration number and address verification is a must for this financial organization to attest documents such as: It’s address, license, or name of the owner. 

Verify Legal Documents

Once the company’s location and physical appearance are verified, the next step of the financial institutes is to attest the legal papers. This will ensure that the company is not involved in illegal activities. This guarantees the business works in a secure environment and implements less risk. The articles of association or other governing documents verified in this process protect the financial organization from the company that is involved in illicit activities.  

Verifying Companies Ultimate Owners 

The key step of the KYB due diligence is verifying the ultimate company owners. Ultimate beneficial owners own 10-20% of business interest. This process helps to identify the true owner of the business, as well as any potential risks associated with them. It also helps to ensure that the business is not being used as a vehicle to commit financial crimes. They can verify the shareholders and centralize the complex ownership of business verification. The following documents can be used to verify the owners, the UBO personal information, passport, address, or source of income.  

Benefits of KYB Verification

  • It assists companies in verifying anyone’s business before onboarding and ensuring compliance with rigid regulations. 
  • Compliance protects financial institutions from significant crimes such as money laundering and terrorist financing
  • The KYB due diligence clarifies the true intention of the business that wants to start partnership for financial services
  • This will check the ongoing monitoring of the company after the onboarding and attest to the organization’s expectations
  • KYB due diligence applied the risk assessment approach to determine high-risk customers
  • Performs the AML screening to identify the company owners who are involved in illegal activities
  •  Identifying red flags and suspicious activities early can be accomplished by thoroughly vetting partners’ identities and legitimacy

The Bottom Line

In short, business verification and AML compliance through adequate measures are compulsory for financial institutes. These derivatives strengthen their ecosystem and protect them from hefty non-compliance penalties. Additionally, this assists financial organizations in streamlining customer onboarding and enhancing brand loyalty. This, in turn, allows them to gain a competitive edge in the financial market. Furthermore, derivatives can be used to mitigate risk and provide liquidity in the financial market.

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