The local and global regulatory authorities have authorized financial sectors, such as brokerage firms, banks, fintech, crypto exchanges, and insurance companies, to authenticate client identity and make sure that they are the ones who they claim to be. Verifying businesses could allow companies to avoid financial crimes like bribery, money laundering, tax evasion, financing terrorist activities, and many other such crimes. Know your business was coined back in 2016, which made authenticating companies, before forming a relationship, mandatory for the business-to-business industry. KYB process allows businesses to validate entities along with their Ultimate Beneficial Owners (UBOs for short) to ensure the legitimacy of the client company as well as check that the higher management is not indulged in money laundering or other criminal activities. Now that you understand what know your business meaning is, let’s continue reading to better understand why KYB is the best choice to verify businesses.
Importance of Verifying Businesses
Performing business verification services is important for entities to deter fraud. The verification procedure involves a thorough screening of the client entity and its Ultimate Beneficial Owners against wanted and global watch lists. KYB is a detailed verification procedure that involves validating a business’s registration records, performing comprehensive background checks along with AML checks on the Ultimate Beneficial Owners (UBOs for short) against global sanctions, PEPs, and watchlists.
Automated vs Manual Way of Verifying Businesses
An efficient KYB procedure is implemented with automated KYB verification solutions.
There are several KYB verification services available these days that help businesses in verifying companies before doing business with or even at any time during the ongoing operations. Companies can be verified manually but the method is error-prone, and not time-efficient, thorough, and cost-effective.
Automated KYB checks, on the other hand, are backed with AI and offer crucial business insights to allow accurate risk assessment. As technology is evolving, businesses are also engaging in B2B relationships across the border. Thus, manual KYB services have become obsolete now and AI-powered KYC solutions are preferred regardless of geographical factors.
Verifying Businesses to Prevent Fraud
In this technologically advanced age, fraudsters have also changed their strategies. They have devised sophisticated ways to launder money and carry out other criminal activities for their nefarious purposes. As the evolution in technology has made cross-country partnerships, the probability to get trapped in such criminal activities has been increased which could cause entities to pay hefty fines. So, manual verification procedures are considered insufficient because they are more prone to be abused by fraudulent and criminal entities to gain their illicit means. Considering this, an automated company verification solution is the best choice to secure the company from fraudsters and to ensure greater security as well as transparency.
Steps of Verifying Businesses
1-The very first step of the KYB process is collecting the data. It means getting relevant information about the business such as the registered name of the company, the date when it was created, its legal address, fax, and registration number, and all other necessary details.
2-The second step is to perform KYC and AML checks on the owners of the company i.e. the UBOs. Ultimate Beneficial Owners include the business’s key stakeholders, like major shareholders and other entities directly or indirectly related to the business.
3-The last step is to check whether the provided information is genuine or not. If any high-risk entity is found, Enhanced Due Diligence is performed so that no suspicion is left after verification is done. In the EDD, businesses, and clients are authenticated against the local government and FATF’s sanction lists to reveal criminal players.
AI-powered KYB services help global sectors carry out a detailed verification procedure before they onboard any customer. Manual verification methods are no longer an option as they are error-prone and time-consuming, this is why they are now being replaced with automated know your business checks. Furthermore, the global compliance regulations have become more complicated and strict which is the reason that AI-powered KYB services are a way forward. This not only protects businesses from fraudsters and criminals but also helps them avoid incurring losses because of heavy non-compliance fines. Furthermore, they help develop good business-to-business relationships, and this leads to building a great reputation in the market. When the company is trusted, it increases the conversion rate and takes the company to greater heights.
- Verifying businesses help the financial sector prevent major financial crimes such as money laundering.
- KYB solutions involve the monitoring of business and its UBOs against watch and sanctions lists.
- AI-based KYB solutions are more effective when compared to manual verification systems.