The Know Your Business solution is critical to the contemporary organization environment. As businesses continue to expand and choose current technologies, it has become more difficult for them to maintain openness and prevent financial crimes. Conducting KYB checks is mandatory for anyone in banking or further monetary services sectors. Let’s discover what Know Your Business is and how it aligns with corporate screening to ensure transparency in business and finance.

What is Know Your Business?

Financial services providers must confirm the identification of business customers wishing to create accounts following Know Your Business requirements. In addition to identifying the UBO (Ultimate Beneficial Owner), who is the person who ultimately owns or controls the firm, KYB checks aim to validate the credentials of prospective business customers.

To solve legal gaps in AML rules enacted after the 2001 World Trade Center attack, KYB requirements were introduced in the US in 2016. KYB checks stop criminal and terrorist organizations from utilizing front firms to launder money.

Know Your Business Regulations

Know Your Customer (KYC) is typically seen as extending into KYB. The rationale for this is that Know Your Business is a relatively new regulation. Companies were not undergoing the same screening until recently, despite KYC standards being in place for decades. This allowed fraudsters to use firms as a front for illegal activity. 

In the 4th AML Directive, published in 2017, European authorities addressed the legal blind area by mentioning KYB. A year after the US Financial Crimes Enforcement Network (FinCEN) included KYB regulations in Customer Due Diligence Requirements for Financial Institutions, the regulation was amended.

Businesses Requiring Know Your Business Verifications

KYB processes have to be adhered to under the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department’s Customer Due Diligence (CDD) standards for financial institutions.

• Banks
• Unions credit
• Dealers and brokers of securities
• Mutual money
• Presenting commodity brokers

Regulations regarding non-US jurisdictions may also apply to other organizations, including the EU. Certain businesses, like casino gambling, may have specific rules. Speak with a legal expert to determine which laws apply to your company.

KYB Compliance and Recommended Practices

It is possible to maximize effectiveness and guarantee compliance while adopting KYB processes by adhering to best practices. The following are five crucial best practices that you should adhere to:

1. Implement scoring for due diligence

Business due diligence rules demand a risk assessment when a client’s identification has been confirmed. The kinds of goods and services the client offers, the types of clients they serve, and whether or not the business is based in a place considered to be a refuge for money laundering or terrorism should all be considered in a risk assessment.

The most precise risk assessment approach is to develop a scoring system that gives various risk elements a weight. At that point, organizations may save time by automating regular risk assessment reviews. You should implement Enhanced Due Diligence (EDD) processes, which include manual approaches and extra scrutinizing checks after the high risk has been identified.

2. Execute Sanctions Assessments

Business proprietors must be verified against official sanction checklists, for instance, the Office of Foreign Assets Control (OFAC) Sanctions List or other equivalent lists released by other nations and multinational associations like the United Nations. Business entities and their staff should undergo sanctions checks. Using a software solution that automatically examines current databases is the most efficient approach to do sanctions screenings.

3. Hold PEP screenings (Politically Exposed Person)

Examining lists of politically exposed individuals is another step in the CDD risk assessment process. These people work in politically sensitive positions vulnerable to recruiting bribes and espionage. With the right software, PEP checks may be performed automatically.

4. Conduct Adverse Media Evaluations

Adverse media screenings look for any wrong information about companies or related people that can point to a danger of money laundering by searching outside sources like newspapers. The ideal method for unfavorable media screenings is to employ an automated search engine that sifts through data using artificial intelligence due to the vast amount of information accessible.

5. Monitor Transactions Continually After

Financial institutions are required by CDD laws to monitor transactions continuously and follow up on KYB verification checks. Large sums, volumes, or regularity of transactions are examples of suspicious transactions, and these follow-ups should contain protocols to detect and report them. Additionally, financial providers must ensure that client data is correct and up to date regularly.

In Conclusion

Carrying out all the checks required to fulfill Know Your Business compliance is complicated and sometimes unfeasible. The sheer number of databases to review, the potential for errors, and the lack of staff and time to address them all make it impossible. Automation is essential for minimizing fraud and legal risk and for efficient KYB compliance. Therefore, companies can simplify business identity verification by using artificial intelligence and biometric techniques, such as face recognition, to swiftly gather and validate the necessary data.