KYB (Know Your Business)- All You Need to Know

Businesses that offer their services to other businesses have to be extremely careful in their customer on boarding processes. If you are a regulated entity like a Bank, Financial Institution or a Business entity from which the money are directed into bank accounts of corrupt business owners or shareholders, the question of money launderers or even terrorism financiers may land your business into danger. 

For say, The Panama Papers that have rocked the tax compliance world with 200,000 shell companies hiding billions and billions of dollars unlawfully from lawful taxation.

What is KYB (Know Your Business)?

In Simple words,  Like KYC (Know Your Customer), the process of a business verifying the identity of its clients in B2B i.e for any Business or Financial Institution with whom the host company is working is know as KYB ( Know Your Business ).

The KYC helps to safeguard the reputation of the host business , and also helps fundamentally to know your  ultimate beneficial owners (UBO) of companies you are doing business with.

 So, under the rules of KYB (Know your business) laws that require investigating the UBO structure is part of the CDD (Customer Due Diligence) process. 

Why KYB (Know Your Business) ?

KYB (know your business) practice enables organizations to determine whether they are dealing with an authentic company or just a shell company that is just present on papers.

KYB checks include AML checks for business and proper documentation. Guidelines such as 5th AML Directive from EU dictate the KYB laws to corporate entities. 

KYB Verification Process for EU (European Union) 

In the EU region to enforce a thorough KYB(Know your business) the due diligence requirements are as follows:- 

1. Identify and verify the customer’s identity based on documents, data or information obtained from a reliable and independent source.

2. Identify the Ultimate Beneficial Owner (UBO) is must and to take reasonable measures to verify that person’s identity and also to understand the ownership and control structure of the customer.

3. The purpose and nature of the business relationship needs to be assessed and information in-detail needs to be obtained.

4. Business relationship needs to monitored on an ongoing basis. This includes scrutiny of transactions to ensure that the transactions conducted are inline with the  entity’s knowledge of the customer, source of funds and risk profile. It is also necessary to ensure that the documents, data or information are kept up-to-date.

5. As per AML directive Identify the beneficial owner and take reasonable measures to verify that a person’s identity so that the obliged entity is satisfied that it knows who the beneficial owner is. 

Challenges in KYB (Know Your Business) 

Finding Beneficial ownership is often the most difficult task. Nominee shareholders can hide true ownership. Shell companies and trusts can hide information within filings. One can also hide it within different jurisdictions. 

These registrations can, in turn, be registered by other shell companies or trusts in yet other jurisdictions. The percentage of ownership is potentially hidden by complex paper trails making the identification process complex and costly. 

In some jurisdictions there are no documentation requirements for beneficial ownership thus there is no shareholder information to investigate. 

Most companies today are applying KYB (Know Your Business) processes as the same to KYC (Know Your Customer), using slow, manual-intensive and time-consuming processes. 

KYB Checks- A Nightmare for the Compliance Team 

1. Compliance teams now need to look at multiple reports and different data sets.
2. The working location and the location of the data could be different.
3. Data is often old or inaccurate.
4. Data can be in a variety of different formats that are hard to reconcile.
5. Company structures are different and can change over time, so the data is difficult to gather and difficult to interpret. 

Thus applying a traditional resource-intensive manual approach and reliance on self-certification is no longer sustainable. 

Hence in this Digital Era, Advance and Automated Compliance Products Powered by AI and driven by Block-chain allows safe, easy KYB (Know Your Business) for any Business or Financial Institution.

© 2020 PiChain Innovations Pvt. Ltd. All rights reserve

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