The B2B sector is increasingly vulnerable to money laundering and fraud. In 2021, 98% of B2B manufacturers, marketplaces, and retailers faced financial losses because of fraud attacks. Businesses that collaborate must know one another to stay safe. This includes identifying the company, verifying the information of other business partners, beneficial owners, and so on. For this purpose, globally and nationally, AML regulations like know your business checks are required. Most jurisdictions have similar KYB requirements. However, for most businesses, properly implementing them is a challenge because KYB compliance checks put a strain on their resources.
KYB Compliance – A Quick Overview
Know your business verification is a due diligence process determining a company’s ownership, structure, and activities. This procedure enables firms to verify that their partner company is not dealing with illegal activity. KYB compliance checks are critical components of AML regulations. A regulated firm must conduct customer due diligence processes according to AML regulations when dealing with any corporate business. This includes the following steps:
- Obtaining information that can be used for the company verification
- Collecting companies’ documents
- Identifying the nature of business relationships and their goals and purposes
- Using a risk-based strategy to identify high-risk corporate clients
- Performing AML screening to recognize high-risk situations when working with corporate clients
- Monitoring ongoing business relationships with corporate clients
- Record keeping
Difference Between KYB and KYC
KYB and KYC are the regulations used to verify companies or individuals and confirm that they are who they claim to be. These procedures ensure that a firm protects its interests while doing business with another company.
Businesses employ both checks to stop drug trafficking, money laundering, and other financial fraud. The critical difference between them is that KYC checks are applied at the start of the verification process of a company. However, in KYB verification, this monitoring continues until the business partnership ends.
Why is KYB Compliance Essential for Verifying Businesses?
The KYB compliance is essential for two reasons. The first is conforming to regulations, and the second is preventing fraud. Here are some reasons as follows:
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Regulatory compliance
KYB compliance assists AML-regulated businesses in determining whether their suppliers, corporate customers, or partners are:
- Engaged in financial fraud
- Offering opportunities to fraudsters for corruption, money laundering, and terrorism funding
- Sanctioned or subject to other adverse regulatory action
The various regulatory watchdogs provide guidelines for identifying and verifying businesses, such as the Financial Action Task Force (FATF) and the European Banking Authority (EBA).
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Fraud Prevention
Businesses can find and eradicate criminals with the help of KYB compliance regulations. This aids in reducing the reputational and monetary risks linked to money laundering, drug trafficking, and financing of terrorism. Fraud can swiftly enter a business. A fraudster could come across information about a company that has been inactive for several years. For instance, they change that company’s name and begin placing orders with suppliers with the intention of not paying them. Before anyone realizes what is happening, the fraudster has vanished with millions of dollars. Consequently, it’s critical to pay attention to fraud indicators. These indications consist of:
- The shipping address and the business’s office location need to be corrected.
- The business does not have any notable credit history.
- The officially displayed documents of the firm contain errors.
- The ownership of the business has undergone a significant change.
Manual and Automated KYB
The KYB compliance process is complicated and requires firms to gather, examine, and manage a large amount of data. Manually performing this task is usually time-consuming and more complex, as it necessitates:
- Establishing an in-house compliance framework with the help of compliance officers and IT professionals.
- Screenings against an infinite number of sanction lists, PEP lists, and watchlists, with no guarantee of success.
Automated workflows validate individuals and firms in real time, ensuring a smooth onboarding process and regulatory compliance. Simultaneously, there is room for human invasion, where businesses need customizable solutions to avoid such risks. These hybrid methods take into account the complexities of specific firm structures as well as industry specifics.
Conclusion
KYB compliance ensures that an organization is real or not when doing business with another company, which poses severe consequences. These checks monitor a company’s income so it won’t be used for money laundering, terrorist funding, or human trafficking. The main difference between KYC and KYB is the verification checks one is to verify businesses, and the other one is for customers. But in know your business, this surveillance continues to the end of the partnership. Businesses mainly use automatic KYB solutions because they are quicker, more authentic, and less expensive. On the other hand, manual KYB is time-consuming and fails to handle a massive amount of data.
