Certain businesses provide their services majorly to other businesses. In the course of providing such services, it is very necessary to find out the persons (Ultimate Beneficial Owners) behind the businesses they are transacting with. This is basically to ensure that the Ultimate Beneficial Owners (UBOs) are not involved in financial crimes or terrorist financing as part of their compliance due diligence.
The checks and verifications carried out on the businesses before onboarding them as clients (and even after onboarding) are the components that make up the term Know Your Business (KYB). KYB, therefore, seeks to verify the authenticity of a business, unveil the persons behind its operations and continuously monitor their activities with the aim of ensuring that they are not involved in money laundering, terrorist financing or other financial crimes.
However, KYB is not without its challenges in the business world today. This article highlights the challenges of KYB, discussing relevant solutions and everything you need to know.
Does Business need to bother about KYB?
Not all businesses are tasked with the requirement of conducting KYB processes before onboarding clients and customers. But there are certain regulated industries where conducting KYB is a condition precedent to the onboarding of corporate clients. In other words, businesses in these industries must adhere to the KYB requirement or face sanctions from regulatory authorities. Some of these businesses that must conduct KYB include:
- Banks and other financial institutions
- Credit houses, money lenders and online payment platforms
- Cryptocurrency exchanges
- Betting businesses
- External auditors and accountants
- Asset managers
Recommended - Digital Customer Onboarding Process: Why You should Automate your Customer Onboarding Process
What are the Challenges of Know Your Business (KYB)?
Like every worthwhile venture, the KYB process is not without its own challenges. These challenges are discussed below:
1. KYB is Time-Consuming
One would think that the automation of KYB processes over the years, through the development and use of KYB solutions would automatically solve the problem of time consumption in KYB processes. However, this has not been the case yet.
Certain businesses (especially banks and other financial institutions) have tons of corporate clients to onboard consistently while at the same time also monitoring the financial activities of their already existing customers in line with Anti-Money Laundering and general regulatory compliance requirements. These processes indeed consume a lot of time.
The KYB process can be broken down into three components namely:
- verifying the authenticity of the business;
- ascertaining the Ultimate Beneficial Ownership of the business; and
- monitoring the activities of the business and its Ultimate Beneficial Owners.
These components are all highly time-consuming processes especially when done manually. Companies like Youverify automates the end-to-end KYB process for businesses to save time.
2. The Cost of Conducting KYB Processes
As stated earlier in this article, certain businesses are mandated to conduct KYB before onboarding businesses as clients or customers. Asides from the initial checks conducted before onboarding, continuous risk assessment and monitoring will need to be carried out periodically on these companies after they have been onboarded as customers. This is done in line with Anti-Money Laundering regulations, directives and requirements.
What this implies is that, for as long a business remains a customer of another business, the latter business (if mandated to conduct KYB), shall from time to time conduct risk assessment and monitoring checks to ensure that its corporate clients and their Ultimate Beneficial Owners are not involved in fraudulent financial activities, especially money laundering and terrorist financing.
Ensuring that these checks are sustained over time and conducted periodically gulps down a lot of money for businesses. Although most businesses in the regulated industries usually have Regulatory Compliance and Risk Assessment teams, they often always will outsource the cumbersome and herculean task of KYB to Regulatory Technology companies who will employ their automated KYB solutions for the job. These Regulatory technologies (RegTech) companies will have to be paid for their automated solutions and services.
For small businesses that are just starting and looking to scale, the cost of sustaining KYB may be one that is hard to bear continuously. This has made certain Small and Medium Enterprises (SMEs) resort largely to more manual methods of conducting KYB which makes the process extremely slow and tasking. An example of such a manual process would be the collation and analysis of business documents one after the other during customer onboarding.
Read Also - 7 Reasons Why KYB is Important to the Growth of Your Business
3. Difficulty in Accessing Data of Ultimate Beneficial Owners (UBO) and Identifying Them
Identifying the Ultimate Beneficial Owners of businesses and perpetually monitoring their activities is not easy. In some countries, the data of Ultimate Beneficial Owners is not readily accessible even at the corporate registries.
Even where the Ultimate Beneficial Owners have been identified, the fact that they can easily be changed leaves businesses playing catch-up sometimes in the course of conducting KYB exercises. In-life monitoring and Anti-Money Laundering (AML) screening of Ultimate Beneficial Owners can be largely frustrated by the unavailability of data or lack of access to the most recent data of businesses and companies.
4. Constant Changes in the Regulatory Landscape Across the Globe
The regulatory compliance landscape is one that is ever-evolving all across the globe. Businesses that are mandated to conduct KYB must ensure that they are at all times in sync and conversant with the laws, policies and directives being churned out by the Regulatory bodies in their respective industries and jurisdictions.
Most times, a new directive or regulation from a regulatory body will bring about the need to make adjustments or improvements in already-existing KYB processes. These adjustments and improvements will consume time and resources often.
5. Balancing Regulatory Compliance with Financial and Business Targets
The goal of every business endeavour is to make a profit. There are certain phases in the life of a business where all efforts are channelled towards meeting financial targets so as to break even. Where a business is at such a phase, it becomes very hard to juggle the demands of regulatory compliance (with its attendant financial costs) alongside the pressing demands of meeting business goals and targets.
Achieving Cost Friendly Automated KYB Compliance with Youverify
Youverify solves the challenges associated with manual KYB by offering end-to-end automatable KYB processes. Essentially, organisations do not have to manually verify other businesses' legal registries and UBOs. This information is automatically supplied from our 6000+ government-backed data sources. Youverify’s KYB solution allows you to perform business verification, business address verification, and Identity verification of business employees and Ultimate Beneficial Ownership (UBOs).
The different challenges that plague the KYB process have left businesses scouting for solutions that will assist and enable them to be more KYB compliant. Amongst other things, the challenge of data acquisition and verification has been solved by Youverify’s Global KYB Solution.
With this product, businesses can acquire and verify data from over 6000+ authoritative data sources.
See how 100+ leading companies use YV OS for KYC and AML screening of customers for compliance and real-time risk detection. Request a demo today.