Business Verification: How to Power KYB Compliance

When it comes to protecting your business, fraudulent activity, scams, and security breaches are just the tip of the iceberg. While there are countless software tools and solutions out there, all with the promise of keeping your organization, employees, and customers – safe, few can confirm the legitimacy of the companies you work with. If you’re a business owner or manager, isn’t your first line of responsibility to ensure that your associated companies don’t present a risk of money laundering or other illegal activity?

Entering any business relationship without verifying your soon-to-be new partner’s authenticity, ownership structure, and reputation can make or break a business. This is where business verification services, commonly called KYB, Know Your Business, come into play. They enable organizations to know, ‘up close and personal,’ just who they’re working with to lower the risk of fraud by assessing suspicious activities or transactions.

Today’s advanced business verification services help companies comply with strict KYB regulations. KYB compliance is a critical requirement in the banking, insurance, and investment management sectors, where fraudulent activity is prevalent and can also damage the organization, its reputation, and, no less significantly, its customers.

Let’s dive deep into what business verification services are, why businesses should care about verification, how to achieve and maintain KYB compliance, reduce the risk of fraud, and save valuable time, resources, and costs with automated KYB processes.

What is a business verification service?

To understand just what a business verification service is, we need to define KYB. Knowing Your Business is pretty straightforward. It’s a due diligence review of a business or even an entire industry against illegal activities, such as money laundering, misrepresentation, money laundering, and fraud. It enables organizations to implement policies and procedures that evaluate suspicious activities or transactions in companies or businesses they work with. In other words, to determine whether or not a specific business is legitimate by running it through a stringent verification process. After all, just because a company presents itself admirably ‘on paper’ behind the scenes, it could be a shell company whose only objective is to… rob you blind.

Business verification is critical to KYB regulations and processes designed to mitigate fraudulent activity. A business verification service typically involves collecting and examining corporate documents, including business registration and incorporation, tax statements, financials, and more. If done manually, these and other documents can be a lengthy and arduous process to verify a business’s legitimate existence, ownership, management structure, and financial performance. When this information is deemed authentic, accurate, and reliable, a business verification service has done its job and, presumably, done it well.

Business verification is critically important for several reasons, such as preventing fraud and ensuring regulatory compliance, as mentioned here. However, for many companies, implementing a business verification service helps them to manage risk, maintain their reputation, and make better-informed business decisions, especially for investment or financial management organizations.

What is KYB compliance, and why is it important?

KYB regulatory requirements, aka compliance, instruct companies to assess and verify the risks associated with their business relationships. KYB compliance comprises Customer Due Diligence (CDD), investigating and authenticating information regarding a customer’s or, in this case, a company’s identity and financial and business activities. What’s more, KYB is an integral part of the Anti-Money Laundering (AML) compliance process to prevent the risk of money laundering and terrorist financing activities. However, at its core, KYB is all about the legitimacy of the ‘business owner’ and less about the identity of its actual customers.

And why is this so important? Because businesses that provide services or products for third-party enterprises rather than individual customers no longer have a choice. They must be exceedingly more cautious and alert when onboarding and partnering with a new business. KYB compliance is relatively new, first introduced in 2016 in the U.S. Since then, regulatory institutions in all four corners of the globe have incorporated KYB into their compliance structure, are used by hundreds of thousands of companies, and are frequently audited. In other words, KYB is the law—no way around it and no way through it. 

KYB procedures are mandatory for financial institutions, for example, banks and smaller credit unions. But it doesn’t stop there. KYB compliance is required for these companies’ third-party suppliers, vendors, and other business partners. Once a company has successfully verified, authenticated, and safely welcomed a new business partner on board, it must continue to monitor its partner’s activities to remain in pristine condition, void of any suspicious or illegal activity.

Bridging the digital divide: Automated KYB compliance

There is one surefire way to make the KYB process easier, faster, and potentially more efficient, and that’s the power of automation, where the end-to-end business verification process is not only accelerated but also ensures increased accuracy when it comes to identifying your newly-initiated business partners. As more and more businesses are mandated to be AML-compliant, which includes KYB, they can’t afford the time and costs associated with manual, often error-prone processes. Here, automated KYB compliance backed by digital authentication processes saves the day.

With just a few clicks, automated, AI-powered business verification services can seamlessly integrate with government or municipal databases and instantly verify global business data, as required. This includes business registration, financial reports, historical company records, ownership documents, and associated Sanctions and PEP watchlist data. Plus, embedded automatic monitoring and control processes ensure businesses are compliant – and stay compliant.

Today’s advanced automated business verification services provide businesses with intelligent, reliable, and fully customizable KYB compliance solutions seamlessly integrated via a single API. With automated KYB compliance, companies can quickly and efficiently verify a new partner’s legitimate identity, enhance the onboarding process, and take proactive steps to prevent fraud and potential financial risks.

Here are the key benefits of an automated business verification service:

  • Customizable workflows. Faster, more efficient business onboarding via fully customizable workflows that meet national/global compliance, including tracking KYB status and progress in real-time.
  • Risk score & risk indicators. Every individual KYB business case file is automatically assigned a consolidated risk score, with risk indicators and recommendations for mitigation flagged.
  • High-quality data output. Based on dynamic logic and business rules, quality output is achieved via automated data source sequencing.
  • Unified views and reports. Holistic KYB performance views, including KYB verification, data, risk indicators, and UBOs.
  • Ongoing risk monitoring. Regular monitoring/evaluation of the risks associated with a business and its controlling entities, with fully automated rechecks, including watchlist screening.

Business Verification Service: How it works

From a single API to maximizing business onboarding, a business verification service works based on a 3-stage methodology that includes running the KYB verification process, customizing the workflow, and creating a UBO profile. We’ve highlighted the three stages below:

  1. Run KYB verification. The initial stage of the process is to create a merchant profile. An automated KYB process enables businesses to fast-track tedious manual processes by verifying filing documents, business registration information, business activities, and more via government databases and other online data sources, including watchlists.
  2. Customize the workflow. Define KYB business goals and priorities, e.g., complying with regulations, deterring fraud, building trust, or risk management. Build the process customized to meet your unique business needs, and continuously track key metrics to iterate and improve the KYB process.
  3. Create a UBO profile. Crucial to KYB is verifying a company’s Ultimate Beneficial Ownership (UBO), the person or entity who is the company’s ultimate beneficiary. This helps prevent the use of shell companies and ensures that the company is not being used for fraudulent activities. A UBO profile typically includes ID-related questions, e.g., name, address, date of birth, and other relevant information, including a declaration of validity and authenticity.

For businesses to ensure KYB compliance, the KYB process must go one step further, and that’s to review the overall UBO structure with not just Customer Due Diligence (CDD), but with Enhanced Due Diligence (EDD), the required procedures for high-risk customer assessment and verification. In a word, EDD keeps KYB and UBO on its toes. Acronyms aside, EDD is mandated to investigate customers or entire businesses in greater detail, particularly when a financial institution suspects that one of its business partners is involved in money laundering or other fraudulent activity.

Business verification is an essential element in KYB compliance. A strong, viable, and fully automated business verification service is necessary for businesses to assess and verify their new business partners. Businesses can protect themselves and their customers from unnecessary risks by determining, implementing, and following the ‘right’ protocols. Failing to do so can result in irreparable damage to a business and its reputation. Not all losses are measured in dollars and cents. Losing customers, in the long run, can and will cost more.

Industry Accolades