In today’s digital world, criminal entities continue to find ingenious ways to exploit loopholes and weaknesses in global financial infrastructure.
The prevalence of crimes such as identity theft, corruption, money laundering, terrorist financing, merchant fraud, and shell company schemes have made it necessary for law enforcement agencies to implement regulatory measures and processes.
In this article, we’ll discuss the AML (Anti Money Laundering) and CTF (Counter Terrorist Funding) acts and how they relate to KYC (Know Your Customer) and KYB (Know Your Business), and how the KYB process benefits businesses.
AML and CTF Acts
AML (Anti Money Laundering) and CTF (Counter Terrorist Funding) compliance for businesses ensure that crucial information about entities and individuals is obtained, maintained, and transmitted.
For a financial institution to be AML and CTF compliant, Customer Due Diligence (CDD) protocols need to be followed. CDD is the process of verifying the identity of clients and assessing their potential risk to the business.
CDD is also the framework for KYB and KYC processes.
KYC and KYB
KYC and KYB screening take place during the onboarding stage. Documents are collected from the client or entity and maintained throughout the lifespan of the C2B (Client to Business) or B2B (Business to Business) relationship. Essentially, this process safeguards a business from fraud and other crimes.
KYB is the B2B equivalent of KYC – it’s the business equivalent between corporate collaborations that verifies businesses and their ultimate beneficial owners (UBOs).
The Benefits of KYB Compliance
The KYB process shouldn’t be seen solely as a means for AML compliance but rather as a process that adds value to a business. KYB reduces operational costs, increases conversion rates, and provides a secure foundation for business relationships.
Automated KYB Solutions
Automated and online KYB solutions eliminate man-hours and human resource expenses. Because online KYB checks are done by AI, automated solutions also eliminate the risk of costly human error and reduce onboarding costs.
A streamlined, automated KYB process is much quicker than conducting KYB checks manually and creates less friction between the business and client during the onboarding phase.
Automated KYB verification tools provide the most accurate verification results, quickly eliminating criminal entities and shell companies in the initial onboarding stages of collaboration. This enables a business to build a clean customer base.
Lower Operational Costs
Following KYB protocols safeguards financial institutions from financial crime, thereby avoiding the hefty fines, penalties, and lawsuits that are incurred when an institution is found to be involved with criminal organizations.
Increased B2B Conversion Rates
Collecting and verifying information during the onboarding stage allows businesses to market to customers with the most suitable products, and the data collected allows a business to continually monitor their risk profile and transactions.
KYB checks also create trust between businesses and their clients because they create a strong brand image that prioritizes transparency, trust, and the customer’s best interests.
Trust and good business relations increase B2B conversion rates and allow businesses to focus on other areas of concern, which bolsters the business’s reputation.
Secure Business Relationships
The foundations of good B2B relationships are transparency and trust, and KYB checks are critical to facilitate solid business relationships and also help enterprises know their partners better.
KYB entails verifying a business’s identity and the legal representative or person responsible for the business, as well as business registration numbers and jurisdiction codes.
Documents required for the KYB process are articles of association, certificates of incorporation, professional bank account ID documents in the name of the company, valid ID documents for each ultimate beneficial owner (UBO), and the ID of the legal representative of the business. However, these requirements vary from country to country.
These KYB checks ensure that clients, vendors, and business partners are not involved with money laundering and other forms of corruption and that a business is not a shell company.
Key Takeaways
Due to the ever-evolving nature of financial crimes such as money laundering, terrorist funding, and shell company schemes, the implementation of regulatory acts such as AML and CTF have been necessary to curb criminal activity and safeguard a business’s interests.
KYB and KYC are crucial processes that help verify that a business’s stakeholders are who they say they are, but they should not only be viewed as a means for AML compliance. KYB checks also have benefits like facilitating secure business relationships and increased conversion rates.
Automated KYB solutions can make the process easier by eliminating human error and reducing HR and onboarding costs.