Modern Financial Management: The Role of KYI in Safeguarding Businesses

With our digital ecosystem being full of threats, there is a significant possibility that the qualified investor and business partners you choose might be involved in illegal business activities. To avoid being targeted by cybercriminals posing as legitimate entities, businesses must have a robust know-your-investor solution in place. The Federal Trade Commission (FTC) reports that consumers lost more to investment fraud than any other type of fraud, with more than $3.8 billion lost in 2022. This has created an urgency in the market for a verification solution that allows businesses to verify investor and investment opportunities to ensure they are legitimate. Companies can face significant financial losses if they establish relationships with investors involved in illegal activities. 

The KYI Basics: Going Beyond Traditional KYB and KYC

An investor verification solution is incorporated to assess the risk associated with an entity willing to invest in a business or providing an investment opportunity to a business. Traditional Know Your Customer KYC and Know Your Business (KYB) help businesses ensure that the entity they’re dealing with is legitimate and is not related to any criminal practices. A Know Your Investor (KYI) service performs these essential functions, but it goes one step further by establishing a specific risk profile for an entity that is solely dedicated to it. This risk profiling first ensures that the entity is legit and not related to any criminal activities. The source of its finances is also traced to protect a company from onboarding laundered funds. 

Another major advantage of KYI is that it creates the profile of a business, providing information about its capabilities, i.e., whether the business is capable of being a worthy partner or not. Investments are closely analyzed to project how they will impact the growth of the business if it agrees to the contract. Financial documents, legal documents, past track records, and operational practices of a business are closely analyzed, which are then used to create a risk profile. Using the risk profile as a reference, an individual risk score is assigned to a potential partner, and the business onboarding the investor then uses this risk score to make an informed decision. This helps avoid future complications, such as regulatory fines and financial losses that can occur if the business that is being onboarded turns out to be illegal. 

The Significance of KYI: Why Is It Essential?

Know Your Investor (KYI) protects businesses from a multitude of threats. Businesses are vulnerable to countless threats when they’re dealing with entities because there is no guarantee of an individual’s identity unless it’s subjected to a verification process. The same is the case with a potential investor and investment opportunity. A business is not aware of its legitimacy unless it uses a Know Your Investor service to conduct verification checks on it. 

• Fraud Detection 

Know Your Investor (KYI) plays a crucial role in detecting fraudulent inventors and opportunities. Accredited investor verification ensures that a business is legitimate by verifying its documents, such as financial statements and registration numbers, against official government databases. If an entity fails to appear in the official databases, it is deemed fraud and eliminated immediately. This helps businesses avoid building relationships with shell companies and fake businesses that are solely created to scam users. There is also a threat of cybercriminals using stolen information to forge fake identities. KYI solutions go one step further and trace a business to its origin, not leaving a single aspect unchecked. 

• Eliminating Financial Crime 

An investor verification solution helps businesses protect themselves from financial crime. This contributes to a safer digital environment, creating a safe financial ecosystem for businesses to function in. This is a major aspect that needs more attention. Money launderers and terrorist financiers often use investment opportunities to wash their black money. For this purpose, these criminals target businesses that have most of their records and processes functioning online. These criminals then use these companies as a channel between them and their resources to hide their money from regulatory bodies. A money launderer could put a large investment in a company and then have it washed through the shares that will be credited once the business generates profits. 

• Regulatory Compliance 

It is not solely a business’s job to keep cybercriminals and fraudsters off of their radar. Global regulatory bodies have also created numerous rules and regulations to prevent fake investors from deceiving businesses. Businesses are obliged to comply with these rules and regulations to help avoid potential encounters with fraudsters and scammers posing as real investors. An investor verification solution provides businesses with a hassle-free complaint experience by making sure it meets all the requirements. From onboarding processes to maintaining reports, investor onboarding, and verification solutions take care of the whole verification and reporting process for businesses. By generating automated, on-demand reports accurately, investor verification solutions aid regulatory compliance, helping businesses avoid hefty charges and fines that are imposed for non-compliance with regulations. 

• Maintaining Reputation 

Establishing business relations with a fraudulent entity can significantly damage a business’s reputation, especially when it’s related to investment because it has direct relations with the stakeholders and shareholders of the company. These stakeholders and private investors can also face significant financial losses if their company of interest makes a bad deal or is subject to investment fraud. The company can lose the trust of these shareholders, and they might immediately withdraw their shares and investments. Along with leaving the company bankrupt, this makes it hard for such businesses to secure future investments as well because their reputation in the market is tarnished and investors don’t want to put their assets at risk again. By adopting an investor verification service, businesses can avoid bankruptcy by eliminating fraudulent entities, thus satisfying their stakeholders. 

KYI In Our Evolving Digital Ecosystem 

The global digital ecosystem is evolving at an unprecedented rate. Keeping up with this evolution is necessary for businesses, as hackers and cybercriminals are also evolving. With the advent of technologies such as artificial intelligence (AI) and machine learning (ML), cybercriminals have created new mechanisms to conduct fraud and financial crimes online. Investment fraud has also been subject to this evolution. 

Fraudsters are now more sophisticated with their mechanisms, as they have started using deepfake technologies and advanced document forgery methods that are hard to identify. Businesses require an updated and robust know-your-investor service that efficiently eliminates evolving threats.

How Shufti’s KYI Solution Can Help Protect Businesses 

Keeping in view the efforts made by global regulatory bodies and private service providers to prevent investment fraud and scams from targeting businesses, it is still not very well regulated. 

Shufti, with its AI-powered Know Your Investor (KYI) solution, allows businesses to verify investors efficiently in less than a second with an accuracy of 99%. The company’s client identification verification solutions can detect fraud, protect operations, and safeguard investors’ funds by including Know Your Investor (KYI) checks.

Before onboarding an investor, ensure their legitimacy with the help of Shufti Know Your Investor (KYI) solutions. We help businesses prevent investment fraud by efficiently verifying the identities of all entities. Shufti KYI solutions help businesses assess the credibility of investors based on comprehensive background checks. This helps companies to make informed decisions and minimize the risk of fraud.

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