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The rapid proliferation of cyber technologies has resulted in a lack of security and regulatory measures. Even though the fintech industry strives hard to fill the security voids, constant technological innovations and artificial intelligence remain ahead. Consequently, cyber and financial criminals find opportunities to commit unlawful practices via the digital space. Business corporations are also involved in full-fledged scams these days. This is why KYB solutions are inevitable for your organization before partnering with other businesses.
Why You Need To Know Your Business
Scamming, fraud, money laundering, and identity theft are some of the crimes associated with the cyber-financial realm. For instance, the Australia Competition and Consumer Commission’s Targeting Report revealed that $91.4 million was lost to B2B fraud in the country in 2022. Business tycoons, politicians, and other influential persons establish shell corporations through which they transfer their illegally earned wealth and hide sources of income by investing in real estate or other companies. Therefore, business verification is a mandatory procedure for every financial and non-financial organization dealing with monetary transactions. KYB solutions are the equivalent of KYC or know-your-customer processes, with the difference in the type of the client, i.e., a business in this case.
KYB Compliance & Due Diligence Procedures
The due diligence implemented in KYB is similar to that of KYC. It involves document authentication initially at the time of onboarding. The primary organization either continuously monitors financial activities conducted by other companies or performs checks at regular intervals throughout the business-to-business relationship. Banks, crypto platforms, and any company that partners with other organizations need KYB solutions to streamline client onboarding procedures.
KYB services aid in identifying suspicious businesses; for instance, an illegitimate company can easily be detected if it fails to provide evidence of income source or money trails. Such a suspicious business profile is strictly monitored. The beneficiary’s name is checked in global databases, such as AML regulatory watchlists having names of sanctioned individuals or corporations, politically exposed persons, and adverse media reports. If the firm or its owner’s name is found in these records, your organization can immediately report to relevant law-enforcing authorities. Therefore, KYB solutions are crucial for adherence to the established anti-money laundering and counter-terrorism financing regulatory laws.
Manual vs Automated Business Verification Services
Financial and non-financial organizations have executed adequate measures to verify the businesses they onboard. However, the methods they implemented were manual. Manual KYB has proven ineffective because it lacks transparency and, thus, risks security. Moreover, manual KYB solutions cost more time, effort, and capital. Still, they fail to secure the organization from becoming a target of financial fraud. Not only that, but it also makes the company vulnerable to possible money laundering activities and flows of illicit funds.
On the contrary, online automated business verification services are needed in the contemporary digital age. The rise of machine learning and AI-backed automated KYB solutions are indispensable for every business organization because they combat the challenges of fraud. Moreover, they are time and cost-efficient while facilitating companies in effective AML compliance. Furthermore, digitally optimized KYB services ensure trust in B2B relationships while maintaining accountability.
Document Verification in KYB
Like KYC, document authentication is the first and most significant step in know-your-business to verify the legal identity of a firm. Organizations should use online solutions for transparent, instant and swift document verification during business onboarding. The following documents and business credentials are required to e-verify company and identify any red flags.
- Business corporation’s full name, as registered legally.
- The government-validated registration documents or licenses.
- Tax receipts and statements.
- Complete documents showing the source of income.
- Data of ultimate beneficial owner (UBO).
- Other documents may include the details of the top management or shareholders that own at least a quarter of the company’s shares.
KYB Verification in the Finance Sector & E-Commerce Industry
KYB verification is critical for the finance sector because of the high risk of money laundering through banks and digital asset companies. Thus, these financial institutions are obligated to resort to reliable and authentic KYB solutions as a part of the anti-money laundering regulatory benchmarks. Likewise, the e-commerce sector is full of fraudulent online business entities.
The demand for online shopping, especially in the post-covid world, has provided opportunities to commit scams and financial fraud. It harms consumers and online shipping companies by incurring financial losses and irreparable reputational damages. Statista reports that online shopping frauds accounted for up to 38 percent in 2020. Therefore, online shipping firms must perform the obligating KYB measures before onboarding businesses.
In a Nutshell
To prevent fraud and financial crimes, KYB solutions have become inevitable for firms, including financial and non-financial organizations. In all, know-your-business aids your company in achieving AML/CFT compliance successfully.
