What Is Know Your Business (KYB)?

In order to stop fraud and curb organized crime’s money flow, mandatory KYC compliances were put in place. These practically force the financial firms to use a system that is capable of verifying information about the identity of every single customer.

The process of KYB (know or knowing your business) involves several different practices that respect regulatory rules set by the GDPR, 4AMLD, PSD2, and others.

Know Your Business – Definition

Every single merchant acquirer, payment company, or financial institution that deals with transfers of money has to KYB-check companies whenever business is done. This includes the verification of business licenses, company registration, and even director identity.

KYB involves various different requirements, ranging from simple ones like date of birth and addresses to complex ones like bank statements. Extra checks might be needed against PEP Adverse Media, and sanctions public lists. The requirements and checks needed by the KYB system are dictated by suspicious reports, country, value of transaction, and nature of business.

Stakeholder and owner identity are checked with the use of automated AML systems and public registers.

The Impact Of KYB

When non-compliance appears, there are huge risks that the business is exposed to terror financing and money laundering activities. Also, when due diligence is not in place, the integrity of the brand can easily be damaged, which leads to lower profits and penalties issued by the authorities.

The Automated KYB System

KYB involves knowing the identity of the business owner and identifying it whenever necessary. This is a time-consuming process when handled manually. Disclosure requirements vary from one jurisdiction to the next so in many cases the process can be cumbersome. Firms that want to be compliant and handle the process faster take advantage of eIDV (electronic identity verification). This automates the entire verification process.

Seamless EDD was created by the need brought forth by the current complex regulatory environment. KYB compliance becomes reality through real-time data verification combined with searches on directors, ID documents, beneficial owners, and companies. These are systems that offer an analysis of names and identities for directors and owners.

The data that is used to verify identity is pulled from different sources, like:

  • Global corporate registries
  • Sanctions databases
  • Global PEP databases
  • Public records
  • Government registers

Besides the checks that are done when a business partnership is established with another entity, KYB also involves ongoing monitoring, which is handled through automated alerts and checks. An API allows fast and easy integration so that information can be retrieved as soon as possible. Then, information is shared with the appropriate parties. When signs of potential problems are detected, the account is flagged. This usually involves a future manual review.

Final Thoughts

KYB is nowadays necessary for both parties involved in a transaction. Laws have to be respected and it is vital that the system checks money involved in transactions to reduce the possibility that criminals use the services of third parties to launder money. To sum up, KYB is both mandatory and beneficial whenever it is required by law.

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