Know your business is a compulsory procedure for verifying businesses when they work with another organization. Regardless of the nature of the industry, every organization should utilize KYB services while interacting with the companies, like they perform KYC measures on individual customers. The KYB process aids in streamlining B2B partnerships and agreements for mandatory compliance with financial regulations, such as anti-money laundering and countering terrorism financing (AML/CFT). This article features an in-depth overview of the top three industries and sectors implementing KYB measures during business onboarding and fully reaping the benefits.
1. Banking Sector
Banks are the primary financial institutions that are responsible for vigorous economic activities around the world. Simultaneously, they become a target of financial criminals who disguise their source of wealth, commit fraud, and launder illegal funds. Such individuals can be influential persons holding powerful positions like business moguls owning transnational shell corporations or political figures who possess off-shore companies. They onboard their business organizations with banks and use the latter to make illicit financial transactions. Therefore the rise of fake business accounts, scams, and money laundering threats led the banking sector to practice know your business verification as the initial client onboarding stage. By implementing KYB measures, the banking sector ensures that the companies getting registered are secure to work with. Furthermore, KYB services assess that the businesses are not involved in money laundering or have links with any criminal network, such as terrorist groups.
To conduct the KYB process, banks understand the working nature of the companies they take on board and estimate the risk level posed. For this purpose, firms are mandated to submit all the necessary verification documents that validate their legitimate identity. Banks perform automated document verification to identify counterfeit or fake records. Furthermore, companies undergo strict due diligence as an essential step of the KYB process. They are assigned risk scores based on their activities after the initial onboarding phase. Banks review the records throughout their agreement’s tenure and strictly observe transactional patterns. A company is flagged as high-risk should any suspicious activity be detected. Hence, digital and up-to-the-mark KYB services aid the banking sector in identifying illegal businesses and complying with AML/CFT regulations.
2. Digital Assets & Cryptocurrency Industry
Dependence on digital solutions in every domestic or professional space has led to the invention of digital currencies. The world has widely adopted crypto coins in recent years in an attempt to conduct all financial transactions via virtual currency. Statista projects the crypto market to reach a worth of USD 64.87 billion in 2027. The growing interest of the general masses and investors has led to the worldwide establishment of cryptocurrency exchanges, wallets, and other platforms related to online assets, such as non-fungible tokens.
Unlike banks, the crypto industry is relatively recent, and thus, it is more susceptible to financial crimes like money laundering and fraud. Shell corporations use financial institutes to launder wealth generated from illegal means. Crypto has now become the focal point of such companies due to the flaws in its security apparatus and lenient regulation in some states. Hence, a digitally optimized KYB process guarantees protection to crypto firms from financial losses due to non-compliance with AML and CFT laws, along with reputational damages.
Business verification in digital token and currency companies comprises similar measures to banking. Therefore, your online asset company should acquire all the essential legal documents and identity details of the business’s top leadership. The most significant and crucial step in business verification is the identity authentication of the UBO. Ultimate Beneficial Owner is the person who owns and manages a business enterprise, possessing at least 25% of its shares. The UBO should be a legitimate individual and must hold government-issued identity documents. Any traces of UBO’s links to financial fraud, money laundering, or criminal networks should immediately cancel that company’s onboarding. Hence, KYB services play a crucial role in the digital assets industry, and crypto firms benefit from them for AML compliance.
3. E-Commerce Market
KYB services are incredibly advantageous for the e-commerce marketplace because of the saturation of online businesses, especially after the onset of the global pandemic. Online commerce is threatened by a high risk of fraud and scams because of loopholes in regulatory policies. Many small-scale and home-based businesses scam customers with defective items and delivery failures. Therefore, e-commerce marketplaces such as Amazon and Alibaba must adopt automated and high-tech solutions to combat the risks of scams and fraud. They should verify company before taking it on board as per the established business and commerce laws.
Many countries have national e-commerce markets, but those platforms must have the necessary measures to ensure transparency and perform security checks during business onboarding. Fake businesses can damage the image and reliability of e-commerce markets, resulting in financial losses and even abrupt closures. Thus, implementing all the mandatory KYB services can minimize fraud risk. To achieve consumer trust, they streamline their business verification procedure with the utmost precision and time efficiency.
The Bottom Line
KYB services aid all organizations in authenticating business enterprises. Banks, virtual asset exchanges, and e-commerce platforms can be termed the top three sectors that greatly benefit from business verification measures to mitigate fraud and diminish the possibilities of money laundering.
