As FinTech and technological solutions continue to innovate, companies are under pressure to revise their business operations strategies. By forming new partnerships to complement their solution, companies are coping with these difficulties and taking advantage of the opportunities made available to them by complying with the rules and regulations. Subsequently, at any stage of the new corporate collaboration, does your company ever evaluate the underlying risk, considering the financial transactions involved? 

 

What is KYB?

Similar to the widely known and standardised process of Know-Your-Customer (KYC), both share the same objectives to make financial transactions safer and prevent the risk of fraud and money laundering activities. The difference between both processes, however, lies in the type of customers that the establishment is dealing with. 

Know-Your-Business (KYB) is a mandatory ongoing verification process for companies such as financial institutions, payment service providers, and cryptocurrency marketplaces as part of the anti-money laundering (AML) regulations. Manual checks would require companies to sacrifice significant amounts of time and labour costs, as well as the increased risk of human error. However, with technological advancement, KYB is now equipped with customer due diligence (CDD) procedures. KYB can now aid companies in efficiently and effortlessly automating the review of the authenticity of an entity, such as their suppliers or the firms that they are working with. 

 

Why is KYB necessary for companies?

With new opportunities and development in the financial sector, risk exposure has heightened. To adapt, the regulatory response has been extended to include the necessary amendments. Yet, the prevalence of fraud and money laundering (ML) is still a persistent problem worldwide. These problems, therefore, have companies looking for measures to stay vigilant and protect the interest of both their users and themselves. 

 

How does KYB work?

So, how does the KYB process work? The KYB process comprises three main elements – Onboarding, Ongoing Risk Assessment, and Transaction Monitoring. Onboarding the entity, KYB works by automatically screening entities and their ultimate beneficial owner (UBO) against the global list of sanctions and politically exposed persons (PEP), watchlist, public record, and corporate or government registries. 

Later, transaction monitoring is conducted to assess the risk status of the business’ transaction activity. 

These thorough background checks ensure that the identity of the entity and its beneficiaries are not concealed, engaged with any illicit activities, or subjected to any sanctions locally or internationally. Examples of beneficiaries include the owners and directors of the entity. Other benefits include the acceleration and optimisation of companies’ workflow and processes. 

 

What are the requirements of KYB?

To stay compliant with CDD rules, companies conducting the KYB process can note the following common types of information that they will need: 

  • Identities of the entity’s owners and directors
  • Entity information, including the name, address, registration number, and licensing documentation

 

Impact of neglecting the KYB check

Some companies might neglect KYB checks because of the cost and complexity of KYB compared to KYC. However, failure to do so may lead to a dire impact, such as fines for non-compliance with regulations, fraud, reputational risk and even facilitation of syndicate crimes. For instances, human trafficking and malpractice of mishandling customer’s funds.

From the recent activities in the crypto space, the importance of KYB checks can be observed in the FTX collapse. In this collapse, Binance had pulled out of the deal to support FTX’s customers to provide liquidity and its acquisition plan. This is after conducting corporate due diligence on FTX and following the latest news report regarding the mishandling of customer funds. Had Binance continued its move to acquire FTX, the impact would have been beyond comprehension in the history of crypto space. 

 

How can Regtank help?

Amid the financial crisis, there is a low supply of hiring professional risk and compliance officers, especially with the increased pressure from regulatory bodies. Attempting to find the balance of staying compliant in the most cost-effective way, companies can be on the lookout for third-party providers like Regtank. 

The Regtank solution is designed and developed by following the Financial Action Task Force (FATF) guidelines. The solution enables companies to fulfil the latest regulatory obligations in multiple jurisdictions and keep up the fight against ML/FT activities with our innovative customisable risk engine. Adopting a risk-based approach, Regtank is constantly improving on the solution and is aligned with the Monetary Authority of Singapore’s (MAS)’s supervisory expectation on name screening practices

 

The future of KYB and compliance 

For any regulated company, KYB will be a part of an inevitable process of ongoing risk analysis and the fight against financial fraud and ML activities. According to a global survey conducted by Nasdaq, 76% of respondents mentioned that their company considers compliance standards to be highly important. 

Consequently, we can see compliance is no longer a burden or a cost center, but an essential component of the company’s success and viewed as a competitive advantage when companies can successfully integrate it from their goods and services to the organisation.