Business verification during onboarding assesses a company’s background, owners, records and financial activities to identify risk.
Regulated organizations, such as financial institutions and payment service providers, must verify companies during onboarding and meet Know Your Business (KYB) requirements to comply with Anti-Money Laundering (AML) and counter-terrorism financing regulations. Those KYB procedures often include identifying and performing Know Your Customer (KYC) checks on the ultimate beneficial owners (UBOs) of those companies.
KYB Checks During Onboarding
KYB checks during onboarding are essential in verifying business entities. The process includes a range of steps, which vary by geography and industry.
Verify Business Documentation
The first step is to gather relevant documentation to establish the legal existence of the business entity. That may include:
- Business registration number
- Legal name
- Operational status
- Key personnel
- Incorporation date
Analyze the Business Profile
The KYB process includes assessing the business’s activities, industry sector, products or services, partners, suppliers and customers. It also could involve gathering financial statements and business history.
Perform a Risk Assessment
A risk assessment determines if there is a threat associated with the business relationship. The assessment covers factors such as the business’s location, industry, customers and any instances of fraud or financial crimes. Organizations can then apply the appropriate level of onboarding due diligence.
Determine Ownership and Control
The KYB process identifies the people who own and control the business and their ownership percentage. Organizations obtain information about the company’s shareholders, directors and beneficial owners.
That customer due diligence includes performing KYC checks on UBOs to verify their identities and screening the company and its owners against global watchlists and sanctions lists.
Implement Enhanced Due Diligence
Organizations can apply enhanced due diligence (EDD) measures when they encounter higher-risk businesses. That could involve gathering additional information or conducting more in-depth investigations into the business and its key stakeholders.
Conduct Ongoing KYB
Ongoing KYB checks are often necessary for regulatory compliance, risk mitigation and maintaining a trusted online environment.
KYB in Europe
In Europe, KYB requirements were established in the Fourth Anti-Money Laundering Directive (4AMLD).
“Identifying the beneficial owner and taking reasonable measures to verify that person’s identity so that the obliged entity is satisfied that it knows who the beneficial owner is, including, as regards legal persons, trusts, companies, foundations and similar legal arrangements, taking reasonable measures to understand the ownership and control structure of the customer,” according to the directive.
The 6AMLD then extended criminal liability to employees, officials of organizations and entities working on behalf of those organizations for showing negligence in enabling the flow of illicit funds.
A UBO in the EU is defined as owning more than 25% of the corporate entity. The EU customer due diligence requirements are:
- Identify and verify customers on the basis of documents or data obtained from a reliable, independent source
- Identify and verify the beneficial owner
- Assess the purpose of the business relationship
- Conduct ongoing monitoring of the business relationship and transactions
KYB in the U.S.
In the U.S., the customer due diligence final rule governs financial institutions, securities brokers or dealers, mutual funds, futures commission merchants and commodities brokers.
“Covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted),” according to the rule.
In 2024, the Corporate Transparency Act will require that corporations or limited liability companies operating in the U.S. report their UBO information to the Financial Crimes Enforcement Network.
Onboarding business customers can be a slow, manual, costly process that’s open to human error. It can take three to four months to onboard a corporate banking customer.
UBO information can be difficult to find. Nominee shareholders can hide true ownership. Shell companies or trusts can obscure information with filings in different regions. On top of that, ownership percentages can get lost in complex paper trails or might not exist.
Compliance professionals work through a range of reports and data sets from around the world. That data can be old, inaccurate or in different formats that are hard to reconcile. Each company structure is different and can change, making it difficult to collect and interpret data.
A traditional, resource-intensive, manual approach can be challenging. But there are ways to automate many KYB processes and layer business and person verification in a single workflow when identifying UBOs.
Fast, Efficient KYB
An integrated identity platform can combine multiple verification capabilities and access data sources around the world to quickly onboard good business customers, manage fraud and maintain compliance.
With the power of data-driven machine learning and artificial intelligence, onboarding workflows retrieve business data in real time, coordinate responses and flag cases for manual review.
When the KYB process identifies UBOs, they can automatically waterfall into KYC identity verification or watchlist screening. An integrated approach to business customer onboarding can help organizations quickly adjust to regulatory changes and accelerate their go-to-market strategies. Business verification with automation helps simplify company onboarding and enhance due diligence to provide a fast, secure customer experience.
Read the solution sheet
Elevate Your Onboarding Game
How to reduce business verification time from what could be a month down to a day with an integrated Know Your Business (KYB) and Know Your Customer (KYC) process.
This post was originally published on July 11, 2017. It has been updated to reflect the latest industry developments and best practices.
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