Know Your Business: The Next Step in Identity Verification

The complex regulatory environment and increased exposure to illegal activities indicate that business verification is in the best interest of regulated companies eyeing long term stability. According to the UNDOC, money laundering is estimated at 2-5% of global GDP, amounting to almost $2 trillion. Digital data breaches have also increased substantially over the recent past, with rising threats of virtual ID theft.  

In order to counter this, banks are spending more than $48 million on due diligence and KYB processes, with rising onboarding costs, as reported by the Thomsons Reuters’ survey. 

With the advancement in digital technologies and virtual data sets, KYB compliance and verification tools can help mark businesses that are involved in undercover activities and transactions. International requirements of both KYB and AML are increasingly reflecting the need to secure business transactions and prevent illicit financial flows from entering the formal sector. 

The Regulatory Approach to KYB

Businesses face strict regulations that require them to identity and verify customers before onboarding them. The 4th AML Directive, in particular, puts emphasis on stringent audit trails that help prevent fraud and financial crime. For this purpose, Digital Verification Services such as KYC and AML screening have proven to be significantly effective in improving compliance procedures. 

In a similar tune, regulatory requirements, such as the AMLD5 directive, now demand strict evaluation of both individual clients and commercial entities before carrying out business with them. This is to ensure that financial institutions and other businesses can avoid being connected to illegal transactions conducted by their clients. 

Money launderers often get under the cover of businesses and the EU is rolling our stricter regulations for customer due diligence to stamp out aggressors. For regulated companies, this translates into a legal compliance requirement for which the adoption of a duplicate screening process for suppliers, vendors and traders becomes important. Other regulations such as the GDPR, PSD2, and FinCEN also require companies to be aware of the Ultimate Beneficiary Owners (UBOs) of entities before beginning a relationship. 

According to new registration demands of the AML directive, all EU states are required to maintain national registers of beneficial ownership information on corporations and other legal entities. All companies and their owners now have to get their details registered, making it all the more easy to identify individuals involved in illegal activities through a business. Information of such regulated businesses will be made available to companies with a legal interest in business relationships.

KYB Process 

Similar to KYC, Know Your Business (KYB) is a Verification Solution that cross-checks business identity by extracting official commercial register data using APIs. Using a business’ registration number and jurisdiction code, an efficient digital KYB service can collect verifiable information for the business. 

Access to automated commercial registers through a data-powered business verification service make the due diligence process swift and free of errors, while saving valuable time and manpower. 

Business Search 

This includes background data on the company: registered address, current status, company type, UBOs, previous name, trademark registration. A financial summary of the company’s operational accounts is also provided by the authentication service, in order to better validate its authenticity. 

Business FIlings

In addition, business filings offer instant, verifiable information about company financials; access to financial statements, sources and links to downloadable reports (such as register reports, annual accounts and shareholder lists). 

Business Statements 

Business statements can help companies stay on top of changes in management and organisation of connecting businesses. A change in directors or beneficiary owners can also reflect an evolving business environment, indicating the need for followup information on business matters. 

Business Networks

Detailed information on corporate structure also provides insights into parent entities and lists of company subsidiaries (child, sister companies). Key factors under consideration are also based on the country in which the business is registered, the nature of business activities and the value of transactions it carries out. 

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Challenges in KYB

By far, one of the foremost challenges in KYB compliance lies in accessing beneficial ownership information, especially in jurisdictions that do not require companies to submit relevant documentation. A lack of shareholder information can make it harder to investigate money trails and business authenticity, leading to potential non-compliance costs. 

Timely availability of data, in the right format, is also another hindrance, especially as company structures and management change over time. Storage and interpretation of data is also subject to a number of factors, mainly centering on companies adopting a manual approach to due diligence processes. 

Moreover, companies that are currently implementing KYC processes have ample room for improvement in process efficiency, costing banks millions of dollars in lost time. It follows that digitization of KYB verification solutions will also be a tedious process of hit-and-trial before firms can grab its full potential. 

Business Verification: Moving Forward

When it comes to risky transactions, regulatory authorities are not ready to bend their rules. The 6th AML Directive is also ready to be implemented soon, which indicates little or no leniency for financial institutions or businesses in the coming future. Therefore, KYB is central to the efficiency and transparency of firms doing business. 

Data analytics software that aggregate and updates information about businesses assists stakeholders in keeping tabs on their operations and practices, as well as fulfilling due diligence requirements of KYB.

As a one-stop solution for business verification, Shufti offers a cost-effective solution of due diligence review of companies. With an electronic identity verification (eIDV) service, the authentication process for business entities is made easier and more accurate. The integration of APIs and data-driven systems now allow easier extraction of data, as well as smoother coordination mechanisms for compliance review. 

Transparent B2B Relations 

As a pre-emptive measure, businesses can use KYB solutions as fraud covers in case of a breach. Using the right mix of technology and support, full coverage of business financials and organizational structure can be accessed in order to trace business activities. This also allows firms to maintain updated company databases for better workflows. 

Business reputation is also incumbent upon due diligence processes that are reliable and foolproof. As a consequence, identification and verification of the beneficial ownership of connecting entities is vital to solving verification challenges.

Effortless Regulatory Compliance

A user-friendly interface allows businesses to fulfill regulatory compliance needs without any friction. Potential losses and non-compliance penalties diminish productivity for firms willing to extend their business networks. Reputational damage is also a leading cause of business failure when it comes to carrying out business with suspicious entities. 

With a comprehensive approach to risk mitigation, online KYB authentication services provide strong risk-shields against such losses, securing long term benefits for all concerned parties.