KYB Due Diligence

The regulatory environment around the world continues to change and shows no signs of slowing down. Many of these regulatory changes require companies to verify the businesses and Ultimate Beneficial Owners (UBOs) they interact with – a process commonly referred to as Know Your Business (KYB).

KYB verification requirements are creating additional pressures for financial institutions and other regulated entities, including:

  • Complying with various Anti-Money Laundering (AML) laws and directives, like the Corporate Transparency Act in the U.S. or 5AMLD in the EU
  • Protecting customer data and privacy
  • Controlling costs
  • Avoiding lengthy delays and onerous processes that could negatively impact the customer relationship.

Verifying business entities and overarching ownership structures now necessitates Enhanced Due Diligence (EDD). EDD requires organizations to secure additional information about a business client. This can include things like determining the intended nature of the business relationship, identifying the source of funds, and undertaking enhanced monitoring of the business relationship.

This EDD helps establish that the business customer is real and identifies the stakeholders and UBOs. The next step involves running Know Your Customer (KYC) and watchlist checks on the UBOs to verify their identities and ensure they aren’t on sanctions lists. Knowing the people who control a company and the risk they pose helps to determine if it’s appropriate to deal with that company.

The costs of ineffective KYB

Traditionally, organizations and banks perform due diligence on businesses using manual processes; staff members conduct individual searches on multiple registers and then import, analyze and review the data sets. Analyzing small businesses and micro-merchants is even more problematic, as they naturally have a less defined history. Not only are manual Customer Due Diligence (CDD) processes arduous and time-consuming, but the inconsistent procedures and preference for creating accounts online can also significantly increase human errors. As a result, ensuring appropriate CDD then becomes an enormous issue.

Thomson Reuters surveyed 430 AML compliance leaders of financial institutions (FI) and found that 58% cited the inability to access UBO data as their greatest challenge. The survey also highlighted that the average annual spend on global CDD and KYB is approximately $48 million — with some banks paying as much as $70 million. FIs also reported rising onboarding costs as an issue, whereas corporate compliance leaders referred to excessive contact from FIs, inconsistent requests, and security concerns as their biggest irritations.

According to an article in Finextra, it takes 3-4 months to onboard a corporate banking customer. The lengthy delays lead to application abandonment and, as a result, “in 2019, it was deduced that the global commercial and business banking market lost $3.3 trillion.”

Automated KYB checks improve workflows and onboarding

Today, solutions that leverage automation and artificial intelligence help reduce costs, increase efficiencies, and eliminate fraud. Our solution, Trulioo GlobalGateway Business Verification, helps businesses and organizations adhere to new and existing AML/KYC and CDD requirements.

Business Verification provides businesses and organizations around the world with an automated KYB compliance API to perform CDD. The platform is a gateway to access information for 330 million businesses in more than 195 countries. With instant access to 180+ government registers and public records, including the ability to retrieve official company documents, Trulioo clients can instantly verify a business and its UBO through one seamless workflow.

Businesses must adapt to today’s consumers, who expect and demand real-time access to products and services online, or risk losing business to competitors. Business Verification provides companies and organizations with a scalable solution to onboard customers quickly, cost-effectively and efficiently. Verifying companies and individuals in real-time helps automate workflows, increase revenue, decrease fraud, and protect bottom lines.

The error-riddled, time-consuming, manual due diligence ways of the past are now giving way to automated KYB checks. Organizations can now deploy regulatory technology solutions that help ensure compliance requirements while enabling seamless onboarding of corporate clients.

This post was originally published on February 8, 2018. It has been updated to reflect the latest industry developments and best practices.