The constantly rising rate of financial fraud and stricter compliance regulations has made it imperative that companies perform Know Your Business (KYB) checks. This will help verify both ongoing and prospective businesses to minimize the danger of transacting with illegal entities.
Know Your Business (KYB) is a way in which organisations can the credibility of businesses before conducting transactions or establishing long-term business relationships among others. This article discusses the importance of KYB to organisations today in protecting their reputation and satisfying compliance.
What Is Know Your Business (KYB)?
KYB is a process that enables businesses to verify the credibility of the other businesses that they wish to work with.
Anti-money laundering (AML) and Counter-Terrorism Financing (CTF) make it compulsory to carry out reasonable KYB as part of business-to-business (B2B) relationship compliance.
This compliance with KYB processes protects businesses from the impacts of noncompliance with AML and CTF.
7 Reasons Why KYB is Important to the Growth of Your Business
Although there are challenges associated with KYB, the top 7 reasons why KYB is important to the growth of your business include:
1. Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Compliance
Adherence to Anti-Money Laundering and Counter-Terrorism Financing (CTF) regulations helps businesses to create credible business-to-business relationships.
All businesses that deal with monetary transactions or payment services are required to adhere to AML and CTF regulations.
KYB-certified businesses are open to opportunities from other businesses. This is because businesses want to do business transactions with other businesses that they can trust.
According to Globalscape, $4 million is lost by businesses as a result of not investing in KYB compliance practices.
KYB compliance report discloses that more than $5.5 million is spent globally by businesses as a result of money paid to regulatory authorities for not complying with AML regulations.
Importantly, KYB processes encourage businesses to remove the danger of not complying with the AML and CTF regulations. It also helps businesses to notice and avoid shell companies.
2. Onboarding Only Legitimate Businesses
Businesses that invest in KYB processes before onboarding other businesses can onboard only legitimate businesses.
Businesses must ensure that the business they wanted to work with is trustworthy and genuine. This can be accomplished through KYB verification processes.
Since KYB verification is an ongoing process, businesses would enjoy the fact that they are doing business with real businesses at all times.
KYB processes enable businesses to avoid shell companies. These shell companies only exist on paper alone to defraud other businesses.
Political Exposed People (PEP), blacklisted people, and criminals hide in shell companies. Without KYB processes, it would be difficult to spot these dubious characters.
3. Secure Business-to-Business Relationships
KYB processes make it safe to do business with other businesses. KYB creates confidence in business owners by ensuring them that they are not doing business with illegal businesses.
KYB checks verify all the Ultimate Beneficial Owners (UBOs), and the shareholders of a business to reveal the calibre of the people behind the business.
These extra steps taken by businesses enable them to build secured business-to-business (B2B) relationships. Businesses that know their UBOs have an advantage over those that do not.
Since all the ultimate beneficiaries of a business are verified, KYB ensures that businesses are not involved in money laundering or other financial crimes.
Verified pieces of information that authenticated the claim of a business can be obtained from KYB solutions like Youverify.
With this information businesses are confident in making important business decisions, speeding up their operations and closing contracts on time.
4. Increase in Business-to-Business Conversion Rate
KYB is effective in making a secure business-to-business (B2B)conversion rate. By using business verification (KYB solutions), businesses can know other businesses better.
Besides knowing their business partners better, the business will be able to focus on specific problems and provide interest-oriented services.
KYB compliance businesses generate more credibility and trust which relatively leads greater B2B conversion rate.
Trust is of great importance in B2B relationships. It improves smooth communication which eventually leads to an increase in the B2B relations conversion rate.
Recommended - 5 Steps to Establishing an Effective KYB process
5. KYB Reduces Operational Cost of Doing Business
The traditional way of verifying business documents can be lengthy and costly. With automated KYB solutions, businesses can reduce costs of operation significantly.
Digitization or optimization of KYB processes helps businesses to reduce human resource interference. The money spent by businesses in onboarding other businesses decreases with automated KYB.
KYB enables businesses to simplify their operations and therefore focus on what matters. Simplification of verifications through automated KYB reduces the workflow of businesses, which relatively reduces their operational cost.
6. KYB Gives Businesses Positive Impressions
KYB-verified information is a clever strategy for a business that can create positive impressions on prospective business partners. Businesses that comply with all the lawful criteria in association with AML regulations can scale their businesses faster.
Complying with AML regulations and CTF regulations certifies a business as authentic to do business with.
7. Reduction in Business Fraud
KYB verification reduces counterfeit documents that might mislead a business into making wrong decisions.
By facilitating the tracking of individuals that constitute a business through UBOs and shareholders verification, businesses can avoid fraud associated with shell companies.
KYB procedures decrease the business risk associated with identity theft. Businesses can now exploit opportunities to scale their businesses.
What are the effects of Noncompliance with KYB?
Some of the effects of non-adherence to compliance include:
- Exposure to money laundering
- The danger of financial fraud
- Huge fines
- Suspensions
- Sanctions
- Likely damage to brand integrity
- Criminal proceedings
Frequently Asked Questions on KYB
Why is KYB Verification important?
KYB verification helps businesses evaluate defrauding activities related to other businesses. KYB verification is regarded as very important because ineffective KYB processes can result in legal issues and penalties.
What is the difference between KYC and KYB?
KYB is referred to as corporate KYC. KYC (Know Your Customer) involves the verification of an individual or the identity of a customer. KYB (Know Your Business) on the other hand involves verification of business identity. The purpose of both KYC and KYB is to confirm that customers and businesses are who they declare to be.
In importance, both KYC and KYB deter money laundering, identity theft and other financial offences.
Who regulates KYB processes?
Globally, KYB is controlled by the Financial Action Task Force (FATF) on Anti-money laundering (AML) and Counter-Terrorism Financing (CTF).
In Europe, KYB is supervised by the following:
- Payment Services Directive (PSD2)
- Anti-Money Laundering Directive (AML5)
- General Data Protection Regulation (GDPR)
What are the benefits of automating the KYB?
Manual or traditional verification of a business is a costly procedure and it can take many hours of work. Automating the KYB removes errors associated with human resources. It also reduces the costs of operation and increases verification time.
Conclusion
Today, businesses do not have to be Fintech businesses to benefit from Know Your Business (KYB) processes. KYB is an important step for businesses working in a business-to-business (B2B) environment to take.
KYB will help your business comply with AML and other legal requirements. Complying with these legal provisions will ultimately protect your business from fraudulent activities.
See how 100+ leading companies use YV OS for KYB screening of customers for compliance and real-time risk detection. Request a demo today.