Know Your Business is the process of verifying a potential client’s identity before entering an agreement with them. This includes checking the business’s relevant details, such as contact information, address, original source of financing, and commerce license. A location-based analysis of the business may also be conducted. KYB is sometimes seen as a further deliberation of KYC solutions. This is because Know Your Business is a relatively newer concept, whereas KYC procedures have already existed for decades. The regulations established by KYC have been levied on customers for a long time. However, they were not imposed on businesses until recent times which, in turn, created opportunities for criminals to engage in illegal activities.
Which Institutions Should Follow KYB Regulations?
The 5th AML Directive has outlined the types of corporations and individuals that are legally required to undergo Know Your Business regulations. It is known that KYB procedures are particularly essential for financial institutions such as banks, insurance companies, and cryptocurrency companies. However, several other types of enterprises are legally obliged to follow KYB practices. These include:
- Credit organizations
- Digital banking
- Audit firms
- External parties, for example, accountants
- Real estate professionals
- Asset administrators
- Notary publics
- Tax accountants
- Online gaming services
- Fintech companies
In addition, businesses that fall under non-regulated industries also tend to go through business verification regulations, even though they are not legally obligated to do so. One main objective for these companies to do so voluntarily is that they are able to form secure business collaborations and protect their prestige. Like other industries, these companies also wish to ensure that the businesses they form relationships with are not involved in illicit activities, such as money laundering, tax evasion crimes, or terrorism funding.
Understanding the Importance of Know Your Business Verification
KYB solutions contain many similarities to KYC identification practices. Nevertheless, the complicatedness of KYB verification is slightly greater than KYC pertaining to the registration of businesses and other relevant documentation, such as ownership data and prospective structures they plan to follow. Subsequently, following this process could take a few months, thereby causing delays in the onboarding process and increasing costs. Thus, it is essential to have an effective plan of action to implement Know Your Business solutions.
The Impact of Digitalization on Verifying Businesses
One possible solution to improve the time-consuming business identification process is to digitalize the process further. A precise guideline for KYB regulations would help ethical organizations safeguard illegal activity, as no business wants to work with suspicious companies unintentionally. Additionally, it is no secret that the world is shifting quickly towards digitalization, and the COVID-19 pandemic has played a huge part in this development. Thus, businesses need a quick working digital solution to overcome the shortcomings of the process. With frequent new technological advancements, AI-driven KYB authentication provides fast verification services.
Digital identity authentication allows companies to enable greater security. Through AI-based technology, the identification system can access databases that are frequently upgraded. This reduces the possibility of working with erroneous data as the chances of human error are also reduced. For example, an AI-driven platform for OCR data extraction can gather information from documentation more authentically than a human data professional. Secondly, if the process of KYB verification is digitalized, it would significantly enhance the speed, accuracy, and effectiveness of the client onboarding procedure.
The Usefulness of Business Verification Services
Going through the process of verifying a business can be very useful for companies bringing in new clients. Firstly, a significant advantage is that KYB enhances the user experience. Through the digital process, clients can be authenticated from remote locations, and the process is done quickly. Secondly, undergoing KYB also establishes an alliance of trust between the company and its client. This way, clients would have faith that their sensitive information is secure. Lastly, it would help company performance to improve significantly. If businesses constantly update their systems, the Know Your Business process would remain intact and ensure smooth onboarding.
Therefore, even though the enhancements in modern technology have greatly benefited businesses, they also present opportunities for illicit activities. Corporate organizations regularly face threats and occurrences of money laundering, terrorism funding, and shell companies. These issues are becoming increasingly frequent. Thus, businesses must have appropriate Know Your Business regulations in place to ensure that they are safeguarded against illegal practices. In addition, by implementing proper digital techniques for the verification of the business, the process can be completed within a fairly short time and speed up onboarding.