Corporate KYC: Business Verification and Onboarding

Every financial institution is subject to conducting Know Your Customer (KYC) procedures when welcoming new customers, whether they are individual or business applicants.

KYC processes are designed to take precautionary measures that safeguard the global banking system. Its primary goals are to:

• Prevent financial crimes that include money laundering, fraud, and terrorist financing
• Ensure legal and regulatory compliance as enforced by the government and regulatory bodies
• Identify and mitigate potential risks of the customer's activities that can harm the business and other clients

To effectively meet KYC goals, businesses must apply the verification and onboarding process for companies as they do with individuals, referred to as corporate KYC or Know Your Business (KYB). Read on to better understand the full corporate KYC process.

‍

What is corporate KYC?

Corporate KYC (Know Your Customer) or KYB is the process of verifying the identity and legitimacy of business or corporate clients. It is designed to prevent illegal activities and financial crimes such as fraud, money laundering, and terrorist financing by screening corporate clients.

Financial institutions must adhere to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations by filtering corporate entities through necessary databases. Many can be used as references for verification, but some of the most important sources include public business registries, sanctions lists, and watchlists.

‍

Documents required for corporate KYC

‍

For banks to meet KYC compliance and combat money laundering, they must be able to start the document verification process correctly. This means collecting the proper corporate KYC documents from a business or corporate entity opening an account with the institution.

Some of the documents required for corporate customers include the following.

Incorporation documents

Legitimate businesses should have an official document issued by a governing authority. To certify the entity's authenticity, documents that fall under this category are:

• Certificate of Incorporation
• Articles of Association
• Memorandum of Association

Proof of business address

Checking a business's proof of address can help ensure they are an operating company. Applicable documentation includes:

• Official documentation with a registered address
• Utility bills
• Lease agreements

UBO IDs

Ultimate Beneficiary Owners (UBOs) can inform financial institutions of whether or not the business entity might have ties to financial crime and illegal activities. Aside from a declaration, the documents needed are:

• Passports
• National IDs
• Licenses

Ownership structure

Understanding the business structure enables banks to decipher how the business works and whether an imbalance in power could indicate whether or not illegal activity might occur within. Documents for this should include:

• Shareholder register
• Percentage of shareholder ownership
• Business activities

Financial information

Checking the financial status and history of a business makes for good practice. This allows banks to evaluate whether the corporate entity has made suspicious transactions that might put their risk score on the higher end. Documents to consider are:

• Bank statements with transaction histories
• Annual financial statements
• Tax Identification Number (TIN) and Tax Returns

‍

What is the difference between individual and corporate KYC?

The differences between individual KYC and corporate KYC primarily lie in the complexity, scope, and specific requirements involved in the processes.

Individual KYC focuses on verifying personal identity and background, while corporate KYC requires verifying a business entity's legitimacy, structure, and financial standing. It's really a matter of focusing on one person or an entire business.

Corporate KYC includes additional steps organizations must take to investigate corporate entities more thoroughly when determining the nature of potential business relationships. These extra measures involve verifying the business structure and UBOs, as well as assessing business risks, which are not applicable in individual KYC.

Corporate KYC is inherently more complex because it needs an extra layer of analyzing and verifying detailed business-related information and conducting ongoing monitoring of corporate activities.

‍

Effective measures for the Corporate KYC process

A thorough background check is necessary to verify a business effectively. This will help financial institutions understand the motives and risk levels of corporations they may conduct business with.

‍

Comprehensive data collection

‍

Having all the valuable information you might need on hand can make the corporate KYC process faster and more efficient. This means organizations must gather all the right data.

Detailed and up-to-date documentation, such as business registrations and files on business structures, can and will make checking information a breeze. Verifying provided information against official registries and publicly available and private databases can ensure you pull the most accurate results.

‍

Beneficial ownership identification

A UBO typically owns more than a certain percentage, at least 25% of a company's shares. Ultimate beneficial owners have the most influence over a business's operations.

Depending on a financial institution's risk appetite, it can lead the company into good or bad activities that greatly affect its risk score. What's important is that all UBOs are identified.

If UBOs are deemed high-risk entities or are connected to high-risk jurisdictions, this can signal whether Enhanced Due Diligence (EDD) is necessary. Thus, it is all the more critical to gather as much information as possible on business ownership and structures.

‍

Taking a risk-based approach

‍

Careful analysis of a business's information should enable banks to determine its risk level. This evaluation will vary based on factors such as the industry, location, ownership, and known transaction patterns. It's not a one-size-fits-all situation—in fact, it rarely is.

The beauty of a risk-based approach lies in tailoring monitoring based on clients' risk levels and complexity. Once you know how the business works, you can implement additional monitoring that meets the needs of different clients.

High-risk businesses, for instance, will receive more frequent checks at higher scrutiny, while low-risk entities may need checks less frequently. Risk assessment tools can promptly evaluate a customer's risk levels, especially for growing financial institutions.

‍

Opting for automation

KYC processes are known to be long and tedious. Constantly asking for the same documents and reviewing and evaluating them can get tiring, especially if banks welcome more than intended.

Fortunately, many KYB software solutions can automate many of the steps needed for an effective process. A great corporate KYC service provider will have features that complete the entire process, from efficient data collection to monitoring.

The biggest benefit of using automation tools for financial institutions is utilizing data analytics and advanced features like machine learning to identify patterns and anomalies that could indicate suspicious activities. These tools can alert organizations to the most crucial changes.

‍

Sanctions and watchlist screening

Many kinds of databases can inform financial institutions on the status of certain individuals and corporate entities. Conducting regular sanctions checks or screening for corporate clients and their identified UBOs against global sanctions lists, watchlists, and PEP (Politically Exposed Persons) lists will better protect the institution.

There are helpful sanctions screening tools that can also give banks real-time updates that are vital in capturing the latest information from any of the relevant authorities and regulators in the financial system.

‍

The benefits of conducting Corporate KYC

There are many benefits to conducting corporate KYC processes. Aside from fostering a secure financial environment for the organization and clients, here are some of the biggest ways banks can benefit from implementing the right steps for verification and onboarding.

• Regulatory compliance with local and international regulations
• Avoiding penalties, fines, and sanctions from non-compliance
• Early risk detection for high-risk transactions that might expose other customers to criminals
• Improved data accuracy in screening corporate clients provided the right data and tools are utilized
• Build trust with clients, partners, and stakeholders with good business practices
• Enhanced security that decreases the likelihood of fraud and other financial crimes

‍

Enhancing the financial system's security with Corporate KYC

Corporate KYC has many similarities to individual KYC as both aim to protect financial systems, verify customers, and enhance the overall onboarding process. They differ in who they evaluate and how thorough these checks must be.

Corporate KYC requires a deep understanding of the business or entities seeking to open accounts, its owners, structure, and transactions in order to complete the verification and onboarding process. Financial institutions can build a safe and healthy environment customers can trust by implementing the right procedures.

We at Vespia value the importance of implementing an efficient and compliant corporate KYC process. This is why our KYB Verification tool implements all the most effective measures to verify corporate clients. Book a demo today and see how we can help your business.

‍