The 2016 Panama Leaks affair exposed numerous flaws in the global financial systems of corporations. New restrictions were required to guarantee that companies requesting bank accounts were accurate and functioning lawfully rather than only serving as front companies for the confidential transfer or hiding of funds. Another requirement of the new regulations was determining who had the final financial and decision-making authority over the companies that created and managed these accounts.
The “Know Your Business,” the business verification framework, is these guidelines’ aggregate name. What is it, then? Why must financial institutions be aware of and adhere to it? What data does a FI need to gather for a KYB check, and how does it go about conducting one? We’ll go over the answers in short in this post.
What is Know Your Business (KYB)?
A financial institution’s procedure for confirming the validity of a business it wants to onboard as a customer is known as “Know Your Business,” or business verification. This entails verifying that the business is legitimate, finding out who owns it, and estimating the risk that ownership poses.
Significance of KYB Compiance
For many reasons, Know Your Business compliance is essential. Similar to KYC, business verification protects financial institutions against fraud, money laundering, and other types of financial crimes. It verifies that all parties to a business connection are who they claim to be and specifies whether or not they are in good standing.
However, KYB checks do more than shield Financial Institutions from financial crime. They also shield them from liability if they disregard laws designed to stop financial crimes, including money laundering and funding of terrorism. An organization may be subject to fines, enhanced compliance oversight, prison time for the company’s executives, and even loss of certification if one of these crimes occurs there and authorities find that the firm did not have enough preventive procedures.
Lastly, a company’s reputation as a reliable business partner is safeguarded by Know Your Customer verification. Credibility will suffer if the organization allows financial crime to occur while under its supervision, is shown to violate industry rules, or is seen doing business with dubious companies and entrepreneurs. Existing clients may sever ties with the company and do business with others, while prospective clients may choose not to establish links. Any of these situations may significantly impact the likelihood of a firm succeeding.
How to Conduct Business Verification?
- Verification of A Company
Verifying the company’s existence and its financial operations’ legitimacy is the first stage in the Know Your Business process. Enterprises can be sure that this mechanism is in place and that the company a business is dealing with isn’t using its profits to finance illicit activity.
Requesting and reviewing official documentation will allow companies to finish business verification. To verify whether a business is authentic, the following are the requirements:
- A legitimate company name and address
- Evidence of registration or incorporation
- Information on the ownership composition
- Authentication of The Individuals Operating the Company
Once a business is specific that the company is genuine and would be at ease doing business with them, enterprises should look behind the scenes. Hence, firms should reduce their danger by determining whether the company’s principles follow the law.
The Ultimate Beneficial Owners (UBOs), or critical corporate stakeholders, must all be identified. Anyone with a 25% or more ownership position or control over the business is considered a UBO.
In the business verification process, organizations will verify that every UBO is a genuine individual participating in corporate KYC, off any sanction or watchlist, and not engaged in fraudulent activities. By confirming their identification and ensuring they are not on any watchlists, organizations can shield themselves against dishonest people.
In A Nutshell
For financial institutions to ensure that dishonest people aren’t using fictitious businesses to conceal their illicit money transfers, business verification is now more crucial than ever. However, it’s a more complicated procedure since identity verification and risk assessment of the firm and its owners are needed. Nevertheless, using digital Know Your Business solutions as part of a comprehensive anti-fraud and AML compliance solution may thus be beneficial.
