What is KYB (Know Your Business)?
Since 2001 KYC laws have been a standard AML obligation to help protect against financial crime, more specifically money laundering and terrorism financing. However, businesses weren’t being scrutinized to the same extent as individuals and could quite easily slip under the radar and in turn exploit B2B relationships financially.
KYB procedures and regulations
All regulated businesses and especially financial institutions are required to perform the Know Your Business (KYB) process as well as the Know Your Customer (KYC) process when dealing with new clients, both private and business ones. These two processes aim to identify the counterpart in new business relations and by doing so helping to determine a company’s level of authenticity.
Anti-money Laundering compliance such as KYB verification will help protect company interests and let them know if potential B2B customers are a legal or shell company. Additionally, if the UBO (Ultimate Beneficial Ownership) structure of a company is reviewed through KYB procedures it’ll help decide whether or not a company is legitimate or owned by corrupt shareholders or money launderers.
With the AML5 introduced in 2016 by the EU, KYB procedures were emphasized to address the blind spot in the previous regulation system. Now, five years later, even more attention will be brought to the KYB compliance process as penalties and punishment are set to be increased for KYB non-compliance with the upcoming 6AMLD taking place in June 2021.
Know Your Business regulations vary by jurisdiction but will in general require firms to implement risk-based AML compliance programs and perform suitable due diligence with new B2B relationships. This means having to analyze collected data such as registration documents, licensing documentations and identities of business owners to help assess the level of risk each new relationship entails.
Risk-based AML programs also include:
- Monitoring transactional behaviors to easier detect financial criminal activity. Unusual volumes or frequencies of transactions can be indicators of money laundering.
- Monitoring businesses involvement in adverse media including both print and online sources to detect indicators of financial crime.
- Screening businesses and employees against both international sanctions lists and political involvement to establish each company’s PEP status.
KYB compliance is to be seen as an ongoing Anti-Money Laundering process and therefore require checks to be done throughout the entire business relationship.
Automated eKYB solutions simplifies AML processes
To simplify the AML compliance process and KYB procedures there’s a couple of different automated and digital KYB solutions (eKYB) for firms and financial institutions to implement. Doing checks manually would require significant time and labor costs, not to mention the increased risk for human error. By integrating an automated technological solution to the AML/CFT infrastructure, necessary checks and the overall KYB compliance process will run faster and more efficiently.
These automated solutions will help detect and react to suspicious activity and AML data, verify a business owners’ identity and exam business structures – all done quickly and without any major efforts. Additionally, financial institutions and banks will better adapt to future changes in regulations, the most pressing one being the transition from the EU’s AML5 to the 6AMLD, by continuously working with smart technology.
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