6 Steps to Conduct Know Your Business (KYB) Verification

Welcoming new corporate clients has its risks. This makes it crucial for financial institutions to start with the appropriate Know Your Business (KYB) verification processes.

Understanding an entity's background during onboarding can protect financial institutions from exposure to illicit and fraudulent activities. With the right KYB procedures implemented, you can ensure compliance with Anti-Money Laundering (AML) regulations and security for your business.

Discover the importance of implementing a KYB or corporate KYC, who needs it, and how to do it efficiently.

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What is Know Your Business (KYB)?

Know Your Business (KYB) is the process of verifying the legitimacy of a business or entity before proceeding with any further transactions with them. It is a meticulous procedure for determining whether a potential business relationship is safe or too risky to proceed.

KYB verifications must review a company's submitted documents, such as its address, business registration, and source of funds. They are created to prevent money laundering, fraud, and other illegal activities that corporate customers might attempt. This effectively makes it crucial for financial institutions to ensure compliance with laws and regulations such as the AML and Counter-Terrorist Financing (CTF).

While regulatory compliance may vary depending on where in the world you are, it's important to take note of main regulatory requirements from enforcers such as:

• Financial Action Task Force (FATF)
• Financial Crimes Enforcement Network (FinCen)
• Europe's AML Directives

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Who should implement KYB?

Financial institutions and businesses in regulated industries, such as insurance and law companies, should implement a thorough KYB process. Regulations require these types of businesses to verify the identity and legitimacy of the business entities they deal with to ensure compliance, avoid legal complications, and maintain their overall reputation and client trust.

Here's a better look at who needs to have KYB procedures in place.

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Financial institutions

Financial institutions are the primary means for individuals and entities from different backgrounds to make multiple big and small transactions. This can expose businesses in this industry to risks if clients are not subjected to scrutiny. Those who fall under this category are:

• Banks, credit unions, and other depository institutions
• Investment firms and asset managers
• Payment service providers and digital wallet operators
• Cryptocurrency exchanges and blockchain-related businesses

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Regulated businesses

Businesses in this category have regulatory requirements they need to comply with before they can operate for legal purposes.

• Insurance companies
• Money service businesses (MSBs) and money transfer operators
• Broker-dealers and security firms

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Large corporations

Large corporations have significant resources, employees, and a bigger capital than others in their industry. This means their decisions can influence many and impact the market in which they operate. This includes the following:

• Companies included in high-value transactions like mergers and acquisitions
• Businesses with extensive supply chains and multiple third-party vendors.

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Fintech companies

Financial technology companies marry the responsibility of financial institutions with more accessible services seen in the form of consumer applications. Due to the nature of their services, they are subject to regulatory and KYB compliance, similar to financial institutions. The types of businesses here are:

• Lending platforms
• Crowdfunding platforms
• Peer-to-peer payment platforms

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Legal and professional services

Legal and professional businesses protect the interests of different individuals and entities. Verifying whether or not potential clients are legitimate businesses before entering into a formal business relationship ultimately protects the firms as well.

• Law firms, especially corporate law, mergers, and acquisitions
• Accounting firms and auditors
• Consulting firms providing financial and business advisory services

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6 Steps to conduct a compliant KYB process

Compliance requirements in the Know Your Business (KYB) process are essential for ensuring businesses adhere to local and international regulations, prevent financial crimes, and maintain the integrity of their operations. Let's dive into the 6 essential non-negotiables of the KYB process.

Check out how Vespia automates the KYB processes.

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1. Verify company information

As businesses welcome new clients, conducting the initial customer due diligence (CDD) process is standard procedure to help verify a company's information. This allows businesses to pull all vital information on their background and determine whether or not it's necessary to escalate their screening program.

Document verification is a requirement for anti-money laundering regulations. This step involves scanning company information against all existing business registries and licenses in your jurisdiction. The key to an effective document verification process is ensuring you collect essential data.

Some verification methods you'll need to look into are:

• Identity verification documents such as IDs and passports
• Address verification found in bills and bank statements
• Financial status verification from asset documentation

Having access to a robust database enhances accuracy in verifying information. For instance, Vespia's KYB solution checks every business's provided details against registered business information in over 300 jurisdictions worldwide.

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2. UBO and shareholder discovery

Aside from standard procedures seen in CDD, gaining a deeper understanding of an entity's background, specifically, its members and most influential leaders can inform you of potential risks within the company. This is where UBP and shareholder discovery come into play.

Most financial institutions use UBO Verification tools to carry out this next step. These solutions should be able to actively detect and flag any illegal activities from identified UBOs and kick off the enhanced due diligence (EDD) process.

UBO screening can also help you understand business structures. An entity with a complicated business structure can indicate whether a business is legitimate. A good example would be a business with multiple layers of subsidiaries or offshore accounts that may not actually be necessary to run the business.

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3. PEP, sanctions, and adverse media screening

Private and public databases should be checked thoroughly. We run the most important entities inside the company against AML lists to look for red flags that might have been overlooked in initial verification.

Screening customers through sanctions lists, global watchlists, and adverse media that the company could be involved with will make all the difference in how you choose to move forward with a business. This can also aid in identifying high-risk customers and trigger the EDD process.

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4. ID checks for founders and representatives

A layer of security is needed to ensure the identities of founders, UBOs, and representatives are clear. A good KYB process should implement supplementary ID checks to further verify these individuals' identities.

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5. Risk assessment and decision-making

Having a decent risk assessment system in place can fast-track the evaluation process of whether or not a financial institution should move forward with a potential business relationship.

The best approach to streamline this is to use a KYB tool that implements a risk-scoring model that classifies customers according to their appropriate risk level and matches it with the business's risk appetite. In this way, the system can likewise kick off the ideal next steps based on the customer's risks.

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6. Ongoing monitoring

Ongoing monitoring is a major requirement for KYC and AML laws and regulations. While you can schedule regular reviewing of business relationships to stay compliant, there is a better solution. You can automate the process with the right tools.

A good KYB software should be able to use risk scoring as a system to integrate the monitoring procedures you need to set in place. It should also be able to notify you of urgent business changes and other important notices you shouldn't miss for compliance.

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Automating the KYB checks

Automating KYB checks offers several significant benefits that enhance efficiency, accuracy, and compliance in the whole verification process. Here are just some of the many key reasons financial institutions and other relevant businesses should opt to automate KYB checks.

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Increased efficiency

When you think of efficiency, time should be a key indicator of success. By choosing to use a KYB tool that automates the process, you can enhance the speed of your entire onboarding flow. In effect, clients can breeze through verifications to improve the overall business operations and improve customer satisfaction.

Additionally the amount of time actually saved processing large volumes of data with speed surpasses what a manual KYB check can do.

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At Vespia, we ensure your onboarding process is fast and reliable so you can easily onboard new customers. The initial verification process can take just a few minutes, saving both your business and customers time from what might have been a long and tedious process.

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Improved accuracy

The best tools can validate data across multiple data sources simultaneously. Some can even have access to other local and international jurisdictions, enabling you to expand your services to a global audience.

Today, some of the advanced KYB solutions work with artificial intelligence and sophisticated technology to minimize error and create more accurate and consistent verification results. That means, fewer false positives and negatives to deal with.

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A KYB tool like Vespia provides access to a reliable database of information when you conduct KYB checks. With it, you can cross-check:

• Commercially registered information from over 300 jurisdictions
• Over 4,000 PEP, sanctions, and adverse media lists
• Over 7,000 document types from more than 190 countries

This means you can identify UBOs, ensure businesses do not have suspicious structures that may indicate they are not legitimate entities, and ultimately minimize the chance of false positives.

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Regulatory compliance

A good KYB verification tool should be able to take the stress out of ensuring compliance. Automated systems can consistently sift through all the necessary steps to meet regulatory requirements at any time, with any customer. This means there's a reduced chance of not meeting the standards and getting compliance fines and other issues.

It's also no secret that laws and regulations are subject to change. While keeping up with this can be overwhelming, automated tools are created to stay up-to-date, immediately reflecting the most recent regulatory changes to help keep you abreast evolving laws and industry standards you might have missed.

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Vespia's KYB verification solution has real-time notifications for important changes in KYB regulations, sanctions lists, and business information. This effectively helps you stay compliant and ensures your KYB monitoring processes are seamless.

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Enhanced risk management

Automation can also take the work out of comprehensive screening when there are many lists to check. This means sanctions lists, watch lists, PEP lists, and adverse media checks will be accounted for when you receive the final risk assessment from your KYB tool.

Once you've come to a final decision, automated system can also offer to continuously monitor business clients. This is especially helpful in monitoring their risk profile and getting real-time alerts for issues as they happen so you can make faster and more informed decisions during risk management.

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Enhanced data security

Data is a valuable component of any business. It holds sensitive information that, when leaked, could cause chaos. Automating your KYB compliance should come with robust security measures that can safeguard every bit of data that is come across in the verification process so you can rest assured everything is accounted for.

Plus, automation can ensure you adhere to data protection laws and regulations that must be observed such as Europe's GDPR.

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Improved reporting and documentation

The last but not the least of the benefits you get with an automated system is a detailed audit trail and report. This information is valuable for documentation needed in complying with regulatory audits and inspections. Additionally, the system should be able to provide easy access to all records of KYB verification your team has conducted.

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With Vespia, reporting and audit trails are readily available as PDF files. This ensures you stay prepared for regulatory audits at any time.

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Streamlining the business verification process

Implementing an effective KYB process is essential for many businesses. This includes fintech companies, banks, large corporations, and other regulated businesses. By thoroughly verifying the legitimacy of business entities and their beneficial owners, different types of organizations can protect themselves from exposure to illicit activities and ensure compliance with regulatory requirements such as AML and CTF laws.

While the entire KYB process may seem long and complicated, there are ways to streamline these tasks. One effective way is to use a KYB solution that can automate the entire process.

Vespia offers all the key features you need to reap the benefits of boosting efficiency, enhancing security, staying compliant, and more. Book a demo today and learn how we can help your business.

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