Over the past few years, the use of the internet is on the rise which has given birth to digital frauds and cybercrimes like terrorist funding and money laundering. Though these crimes have always been there in society, the digitization of the world is providing another opportunity and easy ways for criminals to commit financial crimes.
The anonymity on the internet and inefficient checks to verify the identities are the main driving factors behind these crimes. To incorporate such incidents, we have often come across the word “KYC” that means to know your customers, KYC refers to the process of identifying and verifying the customers’ identity and the risks associated with them to have a secure clientele and meeting the KYC/AML regulations.
From KYC to KYB:
We all know how important it is to know about the customers and the KYC process has facilitated enough. But what about the business entities? Imagine doing business with an organization and a few months later you get to know that organization never existed in real and it was just a mask to fund the terrorist then what? You will be equally involved with the regulatory agencies.
In 2016 after the Panama papers scandal followed by the Paradise Papers scandal, money laundering was taken to another level through shell offshore companies which badly affected the EU members. Taking into account such incidents, the regulatory authorities and the EU have put strict reins on the businesses regarding verifying the businesses leading to KYB (know your business) regulations.
AMLD5 all set to push KYB
In the past few years, money laundering is seen to be increasing every year. As a result, the regulatory pressure is increasing in the business to verify their customers and associated business entities. Different regulatory directives are being imposed to deter money laundering, terrorist funding, and other financial crimes. One of them is AMLD5 that compels the financial organizations to keep a tight rein on the personal information of the business owners and store it in a central registry.
In particular, the AMLD5 holds the EU state members liable to collect and store all the legal documentation regarding the company and company executives in the central registry and it must be made accessible to all other obliged entities.
KYB – A Detailed Insight
KYB is often referred to as an extensive form of knowing your customer (KYC). In addition to verifying the business owner of the business, it also checks for the identities of business executives and shareholders who hold more than 25% of the business shares.
KYB compliance isn’t limited to a single domain, in fact, it covers the entire industry of the consultants facilitating various financial firms to ensure that their customers are properly investigated and verified against their identities to confirm that they are illegally involved in some activity or blacklisted. All the entities dealing with transactions and money transfers including banks, financial institutions, brokerage firms, merchant acquirers, and payment companies, are obliged to run KYB checks on the entities/companies with they are doing business.
The KYB solutions consist of multiple checks including the verification of business license, company registration number, business owner and other executives of the business. However, the KYB verification requirements can vary depending on the nature of the business – for instance, sometimes it may require to verify the address but in some cases, it may be about bank statements. Also, the KYB checks for verification of Ultimate business owners are cross-checked against the sanctions lists, adverse media, PEPs and disqualified directors and executives.