KYB Banking: Significance of Business Verification in Banking Sector

kyb banking

Financial institutions and fintech organizations are much more vulnerable to crimes, including fraud, money laundering, and terrorist funding. Being the primary financial organization, banks might fall prey to businesses involved in illegal monetary transactions. Thus, a bank needs to devise a comprehensive plan of action to avoid any such circumstance and protect itself from becoming a facilitator of money laundering. KYB banking is the ultimate solution to curb identity theft, fraud, money laundering, and other cyber-financial crimes.

What Does KYB Mean?

Know-your-business is a terminology referring to the process of organizational verification while onboarding businesses. It is similar to know-your-customer (KYC) but aims to authenticate companies for secure and seamless business-to-business cooperation. KYB is a relatively nascent regulatory obligation, as opposed to KYC, that has existed for decades. It was introduced primarily to combat terrorism funding and money laundering through shell companies. Thus, KYB comprises all the necessary measures every financial or non-financial organization must take to know which company it should take on board and whether it is safe to work with. The legality of a business is checked through several essential steps, like document verification. Most significantly, it enables your organization to comply with AML and CFT benchmarks.

KYB Meaning for Banks

Financial institutes such as banks, cryptocurrency firms, and fintech organizations can easily become a channel for unlawful economic activities like forbidden funds transfers. Therefore, KYB holds immense significance for all of them, but banks can mainly benefit from it. KYB banking is the verification of business enterprises in banks before opening their accounts. It is an obligatory procedure for adhering to global financial regulatory standards, such as anti-money laundering and counter-terrorism financing laws. Banks, especially in the developed and developing parts of the world, have widely adopted online and digital solutions to enhance client onboarding. They perform due diligence checks on every company and conduct a comprehensive risk assessment to identify threatening business entities.

Automated Document Verification – The Initial Step in Know-Your-Business

Verification of organizational documents is the initial and most significant step when a bank registers a business account. It forms the ground for agreement and collaboration. Furthermore, it enables both allies to commit to the values of B2B relations, such as trust, integrity, accountability, and transparency. Streamlining the KYB banking process through artificial intelligence-based software tools is essential, and automated document verification is the need of the hour for banks. There is a stark difference between the efficacy of manual and automatic authentication methods. The latter involves a comprehensive approach to verifying documents via entirely digital means. Banks collect and verify the following records using AI:

  • Full name and authentic address of the business.
  • Government-authorized registration documents.
  • License copies.
  • Tax-payment evidence.
  • Details of off-shore bank accounts (if any).
  • Identity documents of the company’s owner and beneficiary, called the ultimate beneficial owner (UBO), to ensure their legitimacy.
  • Profiles of all the stakeholders owning a minimum of 25% shares in the organization.

Banks must rigorously scrutinize these credentials and use intelligent character recognition software for data extraction from documents. Such tools let them instantly identify anomalies in the provided business records, such as fakes or forged pieces of information. Therefore, automated document authentication boosts the overall KYB banking procedure and aids in AML compliance.

Mandatory KYB Checks During Enhanced Due Diligence

EDD in KYB is equivalent to that in a KYC process and entails a set of actions taken after the initial client onboarding. Banks should perform vigilant monitoring of business accounts throughout their partnership. EDD is a crucial element of the KYB verification process that comprises regular screening of companies’ financial transactions through a bank. It also helps evaluate the risk level of every organization, thus assigning a risk score to them. Moreover, the global regulatory authorities have established watchlists including the names of potential suspects of financial corruption, money laundering, or terrorist financing.

The list of politically exposed persons (PEPs) includes politically influential people holding any records of economic malpractices individually or through their business corporations. Therefore, banks should prioritize checking their business clients’ names in the list of PEPs during KYB checks. Moreover, well-known organizations should be verified against media records to find any adverse reporting regarding them or their owners. Similarly, reviewing the business according to the checklists of global bodies like the Financial Action Task Force is another necessary measure for business verification in banks. FATF aims to fight against terror funding and money laundering from poor into wealthy nations. Thus, banks must verify if an organization or its owner is outside a sanctioned geographical jurisdiction.

Remote & Digital KYB Banking

The banking sector has shifted to online modes of customer and business verification. Digital KYB banking allows hassle-free and time-efficient business verification services benefits to a corporation. Furthermore, online and automated solutions make the KYB banking process free of space and time because businesses can register with banks remotely and anytime. Most significantly, it allows you to attract more clients because of the convenient and effortless assistance, providing your bank leverage against competitors.

In brief, KYB banking is critical for the global banking sector to achieve transparency, curb fraud, and ensure swift AML/CFT compliance.

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