KYB: All About Know Your Business

A key aspect of compliance for many organizations is Know Your Business (KYB). While KYB has historically been seen as an extension of KYC – and the two have many similarities – it is emerging as its own discipline. That’s because companies that have customers that are businesses themselves must do more complex diligence in vetting them

Having the right processes around KYB can not only help companies stay compliant, but ultimately be more successful. Improving KYB processes means you can serve business clients more quickly and with a high degree of efficiency.

Here is your A-Z guide for everything businesses need to know about KYB:

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What is KYB?

Know Your Business (KYB) is a legal obligation for organizations in highly regulated industries, requiring them to verify the identity of the businesses that they transact with. Organizations must be able to verify the legitimacy of other companies they do business with to avoid legal and reputational risks. The entity itself (the business) must be verified as being legitimate as well as all of the Ultimate Beneficial Owners (UBOs), who are the individual stakeholders in the company.

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Why is KYB Important?

Regulatory Compliance:

KYB compliance is required by law in many different countries and jurisdictions. Failure to comply with KYB laws can lead to companies facing significant fines or possibly being prevented from doing business in a certain jurisdiction.

Fraud and Financial Crime Prevention:

Having proper KYB protocols in place enables companies from doing business with other organizations that are involved in illicit activities, such as money laundering or terrorist financing. It also detects and prevents any individual UBOs from committing fraud, money laundering or other crimes.

Drive Revenues:

Having optimal KYB processes not only prevents crime and keeps businesses compliant, it also drives revenue. This is because organizations that can quickly and efficiently onboard new business clients can increase their market share faster than those that have onerous KYB processes for onboarding new clients.

Risk Management:

KYB helps businesses assess the risks associated with their clients, allowing them to make informed decisions about whether to accept or reject them. This is especially important in highly regulated industries where risk management is a high priority.

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What are Some of the Challenges Associated With KYB?

Despite its importance, Many companies, however, struggle when it comes to KYB for a number of reasons. Chief among them is the sheer complexity of conducting KYB checks, especially if you are using largely manual processes. The KYB process can be time-consuming, which can cause delays and affect the customer experience. This can lead to the disaffected clients. The flip side of this is companies that are not being thorough enough in their KYB checks and opening themselves up to fraud and potential regulatory action. Businesses need an automated, but accurate, method to conduct KYB.

Another challenge is around data – specifically data not being shared across the organization. Fragmented access to data and legacy systems can increase operational and onboarding costs in addition to impacting compliance. Companies also need to ensure they are using the right data, that is, the most up-to-date data from the most authoritative sources such as government databases.

Finally, too many organizations lump KYB in with Know Your Customer (KYC) processes. KYB compliance should be its own discipline with its own processes to ensure optimal outcomes. Businesses should not look at KYB as a part of KYC, nor use the same protocols and processes when conducting KYB checks.

What are the proper steps to follow for effective KYB?

Collect Information:

To do this, you need to collect information about the business — usually its name, address, and registration number at a minimum — and any relevant business registration documents.

Keep in mind that this step might look different depending on the type of business you’re trying to verify. For example, sole props may not show up in authoritative data sources, so you may want to perform additional checks to verify the legitimacy of that individual and ensure you know who they are.

UBO Due Diligence:

Companies need to run KYC checks on all UBO(s) and other stakeholders. This should entail checking against public and private sources to ensure the highest accuracy and a full end-to-end verification of every business stakeholder

Assessment & Decision:

After a thorough assessment of the business and the individual stakeholders, companies can then assess if they can be onboarded or should be investigated further, or denied. The process should be continually refined;  thus improving risk-decisioning and ensuring compliance with changing regulations.

Continuous Monitoring:

Once a new business client is onboarded, that’s only the beginning. It’s important to keep a continuous vigil on business activities to detect any suspicious activity or impending risks in real-time.

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KYB in Action

How Good KYB Drives Revenue

There are several ways having good KYB processes and technology in place contributes to revenue generation. By ensuring regulatory compliance, managing risks, and leveraging customer insights, KYB helps businesses indirectly grow revenue and maintain a competitive edge in the market. Some of the ways good KYB helps with revenue generation are:

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Regulatory Compliance:

KYB is a mandatory requirement in some of the highly regulated industries, such as financial services, and failure to comply can result in significant fines and legal penalties. A robust KYB helps these businesses stay compliant and maintain their ability to operate, which protects the existing revenue streams.

Fraud Prevention:

With a rigorous KYB process, businesses can detect suspicious entities during the due diligence process, and prevent fraudulent transactions, protect their assets, and safeguard revenue.

Cost Reduction:

Automated KYB brings long-term cost savings through operational efficiency, reduction in manual labor, and streamlined compliance efforts. This reduces operational costs and contributes to profitability.

Reputation Management:

KYB supports thorough due diligence and risk-assessment enabling businesses to avoid engaging with high-risk entities, thereby maintaining a positive reputation and trust among clients, which can lead to customer retention and new business opportunities.

Enhanced Customer Relationships:

Since KYB involves verifying client identities and understanding their businesses, it provides insights into clients' needs and potential cross-selling opportunities, which can help generate additional revenue.

Competitive Advantage:

KYB provides companies with a competitive advantage as they are seen as trustworthy partners with a strong commitment to regulatory compliance. This can attract more clients and contribute to revenue growth through increased business opportunities.

Market Expansion:

Effective KYB processes can facilitate market expansion through accurate verification of the legitimacy of potential clients in new markets, thus opening up new revenue opportunities and customer bases.

Conclusion

In the absence of robust KYB processes, companies are at a greater risk of fraud and regulatory non-compliance. Therefore, companies that deal with other business entities must strive to implement correct KYB, instead of clubbing it with regular KYC. This will not only allow them to conduct accurate, complex diligence in vetting the potential business clients, but also stay compliant with the prevailing regulations and drive revenues.

KYB can be a complex process, especially if done manually. Businesses must consider implementing automated and accurate methods to conduct KYB, in order to maintain agility and efficiency.

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