KYB Blueprint - The Best Practices for Conducting 'Know Your Business' Checks

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.

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However, many companies still struggle with doing KYB right. As part of Caf’s Great Identity Debate, we hosted a panel discussion featuring industry experts offering insights on this topic. Here’s a brief recap of the discussion.

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The Evolution of KYB

In an increasingly digital world, KYB becomes even more vitally important. With technology-driven KYB, companies can dig deep and ensure that the business entities that they work with are genuine. This allows them to prevent exposure to risks of the unknown – not knowing who they are working with. 

KYB is also evolving thanks to increased regulatory statutes around onboarding new business clients. In addition, financial benefits, in the form of tax savings and bolstering the bottom line, are further driving its adoption.

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Challenges of KYB

There are also some inherent pain points when it comes to KYB. One of the biggest is documentation, regardless of the size of the business. Although large businesses have an advantage over the smaller ones in terms of their knowledge of the nomenclature, standard documents, and regulatory requirements, that doesn’t make documentation any easier for them. The sheer variety of formats across geographies makes it even more challenging.

To make matters worse, there are certain geographies that do not have official databases that companies can refer to and verify the validity of the documents that clients submit during KYB.

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The Importance of Communication 

Clear, transparent and proactive communication with the client right from Day 1 of engagement is the key to overcoming some of the challenges that KYB brings. Companies must clearly communicate the information they need for KYB, such as all the relevant documents needed.

According to our panelists, companies can do a better job of communicating the positive aspects of KYB. They recommend switching the KYB conversations towards benefits such as financial incentives and tax savings, which can encourage prospective clients to participate eagerly in the KYB process. The ability to walk the prospective clients through the company’s KYB process can help make it better for all stakeholders.

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Train the Reps

Companies must use the services of the right people, with the right expertise to communicate these benefits. They should consider conducting training sessions to educate their client-facing  representatives and help them gain an in-depth understanding of KYB. This will not only save time, but also ensure faster onboarding. The human element, especially while dealing with small and micro businesses is critical, as that can give them the confidence and encouragement to proceed further.

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Do KYB Once, And Do It Right

Unlike KYC, KYB is more complicated and does not follow a gradual approach to verification. This is because regulations mandate that KYB be fully completed on Day 1 of the engagement and companies know the business that they are about to deal with. It is, therefore, vital that companies make the clients fully aware of the process and expectations for a smoother KYB process. 

In some instances, companies can complete KYB with a single document such as license or registration certificate and fully onboard the business entity in compliance with the local regulations. But these are exceptions rather than the rule. It behooves the companies to complete KYB upfront so that there are no surprises down the line. Do it once and do it right, suggest the experts.

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No Template for KYB

There is no silver bullet, from across any industry, when it comes to a doing KYB properly. This is largely because regulations and documents differ across geographical locations. For instance, in the European Union, there is no single method of KYB. Companies must follow the mandates for every individual country.

Even if some countries follow the same laws, the policies and infrastructure are different, which make documentation that much more challenging.

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Practical Takeaways for KYB Practitioners

Experts suggest introducing a personal touch and dealing humanely with clients, especially small and micro businesses, to make the KYB process easier for them. An important takeaway is to double-check on the customers that were rejected for some reason. This will help ensure no good customers are lost. 

An in-depth understanding of local regulations and customer psyche, and explaining the benefits of KYB can make the whole experience smoother. Lastly, the panelists recommended working with vendors that share the same outlook to help deliver the best KYB experience to prospective clients.

In case you missed it, watch the discussion now for more KYB insights.

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