know your business

Increasingly regulatory reform and widespread money laundering, as well as illicit activities, have left businesses vulnerable to attack from criminals and dangers. Having a strong Know Your Business (KYB) protocol in place at the outset of new customer relations can help combat this, however. 

Most individuals fail to determine the difference between the established Know Your Customer (KYC) and the newer KYB. KYB compliance shares similar requirements as KYC especially when it comes to making financial interactions safe and protected. Both have verification checks that are stringent and that meet the compliance guide, but they also are distinct. They are different from each other because they look at different attributes of a customer’s and business’s identity. 

What is KYB? 

KYB compliance checks seek to find the veracity of a business, company, and organization. The checks verify a business’ attributes, ownership, and other identifiable information to protect organizations from falling victim to criminal activities involving financial fraud. Compliance in KYB includes business verification. This involves the submission of verification data and some monitoring stages. This information is checked against data pulled from public archives. 

What is KYC?

KYC focuses on anti-money laundering compliance. This focuses on individuals who apply to open accounts at financial institutions, crypto exchanges, or banks. This process verifies their financial backgrounds and past histories against financial fraud and illicit activity to determine a risk score. These scores and profiles are especially useful to banks. 

Why are they necessary? 

Before the introduction of KYB or KYC, the financial fraud levels were an incredible amount of total crime around the world. According to the UN’s Office of Drugs and Crime, the global money-laundering rate was 2-5% annually. There was not a legitimate way to control businesses or individuals’ illegal financial interactions. 

In order to try and regulate and control financial crimes, the Bank Secrecy Act of 1970 introduced new guidelines which were later incorporated into the 2001 USA Patriot Act. These guidelines were more universally accepted in 2003 and KYC was created. These guidelines checked the financial progression and transactions of individuals. It ushed banks to keep a diligent eye on all of their customers and follow specific regulated requirements. 

This was not a complete solution for criminal fraud though. There was a loophole that aided businesses and corporate owners. Banks were not required to check and verify the partners and representatives of the businesses they worked for. This left a huge opportunity for fraud and illicit activities to go unnoticed. Businesses could therefore protect the personal information of financial criminals associated with them and perform illicit exchanges and activities to go unpunished. Hence why KYB was developed. 

What are the requirements for KYB?

Since KYB targets businesses and organizations primarily, its verification process requires information that includes a character report of the unique beneficial owner of the organization and that of all investors that hold a quarter share. The verification requirement includes the business address, any recruitment reports, business license and registration as well as the identification documents of directors and representatives. 

Digital KYB

After its introduction, KYB had to go through several stages of experimentation by the financial businesses that employed them. They altered and customized the process to make it suitable for KYB’s needs. However, this was very labor-intensive. To improve compliance, the process was digitized to lessen the labor and reduce the chances of human error. 

This new way of working has also created new advanced features. The process now requires the utilization of new advanced features such as identity verification, online submission, virtual verification, and Ai-based Diligence. It should improve the procedure in terms of diligence and undoubtedly forestall slip-ups. 

Every year that goes by, the process of digitization in KYB progresses. The AI continues to get smarter. AI-based questionnaires aid in the process of business verification and take out some of the shortcomings and slip-ups. These processes have permanently improved KYB and have reduced the likeliness of businesses and customers being victims of fraud. 

Know Your Business

KYB guidelines are carried out to infiltrate individuals and businesses that have the intention of indulging in illegal activities. These activities are usually tax avoidance or money laundering activities. Financial fraud continues to grow as people find ways of getting around the protections already in place. KYB seeks to eliminate this as much as possible and seeks to make all financial interaction around the globe smoother and safer. This will diminish the rate of financial crimes and make conducting business safer.