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Standardisation processes ought to be monitored and audited by either an independent body or a national regulator
Wherever you look in the world of online business, fraud will never be far away. Figures show that in 2022, 39 per cent of businesses were subject to an attempt to defraud them, with that number only expected to increase as 2023 progresses.
It has therefore never been more important to know the company at the other end of your business’s transactions. Due diligence is vital as a way of keeping on top of regulations in many different fields, not least those concerning anti-money laundering (AML).
The difference between KYB and KYC
AML regulations require businesses to carry out checks on their prospective customers to establish both their identity and also their authenticity. There is much common ground between Know Your Customer (KYC) processes – put in place by financial institutions to ensure their services are not being used to facilitate criminal activity – and Know Your Business (KYB) processes, which monitor for the same activities, but are instead carried out on a business or corporate identity.
Business-to-business (B2B) customers must therefore make use of increasingly sophisticated KYB processes to ensure they are on the right side of the law and conducting business that is regulatorily sound.
An automated KYB process can identify the ultimate beneficial owner (UBO) of a company and its major shareholders quickly and efficiently. It can then flag any discrepancies, such as the business’s registered address and its licences and registrations. These checks enable a company to prove whether they are genuine or simply a shell organisation that may be used for illicit transactions. Submitted names and names associated with business addresses are then cross-referenced against databases of sanctioned individuals or politically exposed persons (PEPs).
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Ongoing monitoring of the regulatory landscape
KYB procedures have the principal aim of preventing money laundering activity and as such are described in the most up-to-date AML regulations – 6AML Directive – provided by the European Union. Whilst earlier regulations did not require the identity of the UBO of a company, 6AML Directive stipulates that the identity of the UBO be made publicly available for the regulations to be fulfilled. Ongoing monitoring of the regulatory landscape and appropriate reactions are vital. Bad actors do not only enter when a business relationship begins; they can be brought in at different stages of a business relationship.
Identity verification tools can also be used in combination with KYB processes to remove the heavy human burden of responsibility when it comes to identifying fraud. With an automated process, instances of fraud in the verification of new customers and partners are automatically flagged and dealt with, leaving team members free to carry out other work that is important to the success of their business.
KYB and identity verification are key to preventing opportunists and organised criminals taking advantage of legitimate, law-abiding businesses. Their importance highlights a need for them to be standardised across jurisdictions and borders, with enough room for sector-specific variations. Most significantly of all in the fight against financial crime, the standardisation processes ought to be monitored and audited by either an independent body or a national regulator whose job it is to ensure correct adherence.
Such joined-up thought will be essential to reducing the impact and misery that B2B financial crime can cause to many.
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