Role of the Know Your Business Process in Preventing Financial Crimes
The rise in digital information technologies has led to a hike in cybercrimes and financial offenses. Money laundering and terrorist financing have become the primary threats to global security, especially after the incident of 9/11 in 2001. Consequently, countries began efforts to contribute to the fight against these heinous crimes. Since then, they have devised their plans of action by legislating anti-money laundering laws and adopting relevant measures to comply with them. KYC and Know your business are included among the strategies or tools used to achieve this objective successfully.
What is KYB?
Know your business is all about verifying businesses or organizations when they interact with one another. Financial or non-financial firms and public or private institutes deal with each other at some point through partnerships, agreements, and service exchange. KYB equals the KYC procedure but deals with companies and B2B relations. Every business should perform these checks to ensure security and transparency as well as accountability to the law. Simply put, the know your business process applies to industries including fintech, banks, crypto and digital assets, real estate, etc. An estimate predicts the world e-KYB market to reach $312.1 million by 2027.
KYB holds paramount significance in streamlining your business operations per the security requirements. Furthermore, it allows organizations to assess the possible risk potentials and establish sufficient trust before partnering with other businesses. KYB focuses on identifying a firm’s negative indicators or red flags, for instance, a misleading record of financial transactions or false information about the owner’s assets and sources of income.
How To Automate Know Your Business (KYB) Process
Verifying a business owner’s identity, looking at the ownership structure and supporting documentation, and figuring out who the beneficial owners are can be time-consuming tasks because of the growing pressure on companies to adhere to AML legislation and CFT. Automated KYB compliance is useful in this situation.
Automated KYB compliance uses electronic identity verification (eIDV) to streamline the verification procedure, enabling firms to abide by AML guidelines and safeguard their operations. It makes it simple to comply with KYB through electronic authentication, speeding up and streamlining the procedure.
Automated KYB compliance incorporates data from the PEP and Sanctions databases, state analyses, and global company records to examine the end beneficiaries and stockholders. The maintenance of compliance is guaranteed through ongoing monitoring and automatic controls. In this manner, companies can use APIs to acquire and validate data from formal commercial registrations. The business-critical data can be gathered for the business by the digital KYB service with the help of the business authorization code.
Automating KYB compliance decreases human error risk while also saving time. Because of the system’s improved efficiency, accuracy, and dependability, the business verification procedure will be completed without hiccups. Businesses may make sure they are complying with the relevant regulatory requirements and defending their organizations against financial crimes by automating the KYB compliance process.
Significance of the KYB Process for Financial Institutions
The finance sector is much more prone to becoming a target of fraudsters and criminals than others. This is primarily because of bulks of monetary flows. Banks are the fundamental financial institutions that have prevailed in the global economic system traditionally. Digitization introduced the crypto and virtual assets industry as a revolution in finance, attempting to replace fiat currency with virtual one. Thus, being a relatively recent addition, this sector still struggles to keep up with security and regulatory policies. This is where the know your business process plays its role.
Financial organizations, including banks and virtual currency firms, must be aware of who they work with by critically analyzing the businesses getting attached to them. Thus, implementing a rigorous KYB process is vital for them to avert getting into the hands of harmful agents such as impersonators, money launderers, and financiers of criminal networks. Most significantly, by staying active during business onboarding, they can prevent AML non-compliance and avoid the resulting legal consequences.
KYB to Achieve AML Compliance in Real Estate
The real estate sector also faces a high risk of fraud, scams, and financial crimes. Affluent business moguls own shell corporations and purchase properties to disguise their source of income. They also possess off-shore properties abroad via laundered money from their home country. Therefore, it is necessary for real estate companies and property dealership firms to perform KYB checks before dealing with businesses and verify their proprietors or ultimate beneficial owners (UBOs). Knowing your business procedures are crucial for the real estate industry to ensure secure dealerships and stay compliant with the AML/CFT regulations while mitigating fraud.
KYB Compliance in E-Commerce
The online or e-commerce industry has gained much significance during and after the global pandemic. It deals with a range of businesses, from small, home-based start-ups to large-scale enterprises. However, the rise in the demand for online shopping eventually led to the emergence of fraudsters and scammers. Therefore, knowing your business process is critical to boost the safety of customers who purchase from online businesses. KYB allows e-commerce websites like Amazon to identify suspicious online firms having misleading income records, tax payments, and forged documents. Therefore, it also falls under anti-money laundering regulatory standards. It is exceptionally significant to scrutinize, verify, and authenticate every online business getting registered on e-commerce marketplaces to avoid legal consequences due to compliance failures.
KYB Application in the Metaverse
The Metaverse has recently become a buzzword, with global communication companies like Facebook jumping on the bandwagon. The metaverse is an entirely virtual space where users interact with one another through their digital identities, known as avatars. It has integrated artificial intelligence-powered virtual reality (VR), gaming, and augmented reality (AR) into one online world. It operates its own real estate and assets system. Users purchase and sell assets in the metaverse using cryptocurrency. Hence, automated, reliable, and swift business verification services have become the need of the hour in this virtual world to save the platform from users’ privacy breaches, identity theft, fraud, and illicit funds transfers. This is how knowing your business process is indispensable for the metaverse.
To Conclude
Knowing your business measures have a wide range of implications in financial or non-financial organizations and multiple other sectors. They are essential for verifying business partners before initiating B2B relations and alliances while guaranteeing AML compliance.
