KYC/KYB – A Thorough Overview of Identity Verification & Its Relation to AML

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The contemporary era of prompt digitization has led to the demand for constricting security checks. This factor emphasizes the significance of stringent policies regarding any organization’s security protocols. Identity verification is one of the necessary measures taken by various financial and non-financial firms. ID authentication is a compulsory element of the client onboarding process. KYC/KYB procedures revolve around identifying clients, both individual customers and business organizations.

What is KYC and KYB?

Before covering the financial regulatory laws and standards in detail, it is first essential to discuss the concept of KYC/KYB. More significantly, the similarities and differences between KYC and KYB should be explored. KYC simply stands for know-your-customer. It refers to the initial set of measures adopted to verify individual customers while taking them on board. KYC involves every possible action to ensure a secure alliance with customers. It includes acquiring and attesting the identity documents of customers, which consist of their national ID cards, certificates, driver’s license, passports, etc. Similarly, customers’ residence is validated by collecting address proofs, such as utility bills, so that they may be proven as legitimate persons with legal identities.

On the contrary, KYB refers to know your business, which is all about companies that collaborate with other organizations. All the B2B relationships, including partnerships and agreements, fall under the umbrella of KYB efforts. This is the only point of deviation between KYB and KYC. Otherwise, both the client onboarding procedures are similar in terms of document validation and scrutiny. Just as KYC aims to secure organizations from financial fraudsters and criminals, the objective of company verification is to protect businesses from money launderers. Hence, KYC/KYB is critical for every firm to abide by the regulatory standards related to money laundering and terrorist financing.

Measures Required to Verify Company

Document authentication is also vital for KYB because it allows organizations to calculate threat perceptions affiliated with a business partner or collaboration. It ensures the legality of a business with officially preserved financial records and pieces of evidence. Document verification is an indispensable element of the due diligence processes, enabling companies to perform crucial risk assessments. Therefore, businesses should collect all the identity documents of their partner organization’s ultimate beneficial owner, the primary proprietor. Likewise, document-authorized licenses or registration papers must be acquired to check if the business ally holds governmental approval, including all financial statements, especially tax records and income sources. An organization should pursue its business partner’s money trails and check if they link to money laundering. Similarly, it should be assured that the collaborator is not part of a shell corporation.

Business Checks Against Watchlists & FATF

Whenever a financial or non-financial organization conducts KYC/KYB, it performs due diligence, which occurs during onboarding to assess the overall risks. However, the enhanced due diligence is only performed as a feature of the perpetual or ongoing KYC/KYB. This implies that the monitoring of a client or business, in this context, continues throughout the B2B alliance. Risks are frequently evaluated to detect any changes in the behaviors or activities of business partners at any point. This also includes suspicious financial transactions with traces of money laundering of funding of banned outfits.

Enhanced due diligence, an essential measure of KYB services, allows firms to filter other organizations by keenly verifying against the national and global watchlists. Some of the indicators are listed below:

  • Politically Exposed Persons (PEPs): The lists comprising PEPs highlight the individuals having public positions and political standings. In the case of KYB, the UBOs’ profiles are checked in PEP lists.
  • Adverse Media Reporting: Sometimes, renowned business moguls are suspected of money laundering and disguising their assets abroad. Their name or company is mentioned in media reporting. Hence, businesses must investigate the adverse reports to see if they include their business partner’s name.
  • Financial Action Task Force (FATF): FATF is the inter-governmental financial regulatory body that governs international monetary transactions. It is responsible for identifying and warning the states or geographical jurisdictions where money laundering is detected. The countries suspected of money laundering or terrorist financing are added to FATF’s grey and black lists, depending upon the level of risk they pose. Consequently, economic sanctions are levied on the companies, their owners, or even an entire country based on the criteria of lists. Therefore, every business firm must check FATF’s databases to gauge the risk level.

Authentic KYB Solutions Providing Companies

Multiple KYC/KYB solution-providing firms offer AI-backed software tools to financial and non-financial institutions. Businesses can easily seek services from reliable and authentic software-as-a-service providers. These companies are registered with the state government and, thus, hold legal status. Their primary objective is to provide broad security solutions to organizations to not just protect the latter from becoming a target of cyber-financial criminals but also shield the clients from fraud. Therefore, KYB solutions providers aid businesses in AML/CFT compliance.

Simply Put

The KYC/KYB process is inevitable for any organization during the initial onboarding of clients. In business verification, KYB is critical to ensure the security of doing business with another company without fearing non-compliance consequences. Hence, KYC and KYB directly relate to anti-money laundering (AML) compliance.

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