Introduction
With illegal financial activities like money laundering & terrorist financing on the rise, businesses are realizing the need for robust regulatory practices in place. KYC (Know Your Customer) & KYB (Know Your Business) practices have been established to bring down the possibility of risks & to ensure smooth business for both parties.
KYC and KYB procedures fall under the umbrella of Customer Due Diligence (CDD), which businesses are required to undertake to ensure compliance with AML/CTF regulations. These Anti-Money Laundering & Counter Terrorist Financing tenets were created to mitigate risks of financial crime and protect businesses from being used to funnel money into illicit activities and criminal ventures.
What is Know your Business (KYB)?
Lack of compliance significantly impacts a business’s reputation, and trust & also brings in hefty criminal charges. KYB or know your business is a stringent procedure that businesses have embraced to protect themselves & their customers from financial crime.
Know Your Business, or KYB is a regulatory procedure that companies use prior to carrying out business with clients in order to identify potentially suspicious activity. KYB ( Know Your Business ) obtains data from reliable sources to verify the company, its activities & also monitor its actions constantly.
KYB (Know Your Business ) helps businesses analyze their potential partners’ risk profiles. It assists them in preventing illegal activities like money laundering, terrorist funding, etc.
What is Know your Customer (KYC)?
Know your customer or KYC is a regulatory & obligatory requirement that businesses implement before carrying out a transaction with a new customer. KYC checks are typically performed prior to activities like property purchase, opening an account, onboarding staff, etc.
KYC requires individuals to provide valid documentation such as identity proofs, address proofs, etc., for screening purposes. KYC, or Know Your Customer helps companies comply with AML regulations & significantly helps bring down the chances of fraud & financial crime.
Why Do Businesses Require Strong KYC & KYB?
KYC and KYB ( Know Your Business ) are crucial processes for businesses to remain secure and prevent themselves from being leveraged for illegal activities. Here are the major reasons why businesses should strengthen their verification protocols.
- Money laundering & terrorist financing
An estimated $500 billion to $1 trillion is laundered every year, this comes up to about 2-5% of global GDP.
Money laundering is a pressing problem for global economies and the best way to discourage these and terrorist financing practices is to conduct thorough KYC & KYB at the business level.
- ID and business fraud
Online fraud has been on the rise since 2020, with online lenders losing$6 billion a year to synthetic identity fraud. Financial institutions are among the most vulnerable to online attacks and require a means to stop financial crime at its roots.
By verifying KYC and KYB before onboarding, businesses can leverage cutting-edge technology such as ML-powered fraud filters, DB & PEP checks, and smart verification algorithms to mitigate instances of fraud and protect both business and customer data from falling into the wrong hands.
- Risk management
Conducting KYC & KYB helps businesses collect valuable information regarding their clients, which they can use to take informed decisions on whether to conduct business with them.
By evaluating KYC/KYB and assigning flexible risk scores based on close monitoring and database checks, businesses can control the risk they open themselves up to. Additionally, businesses can check if clients happen to be Politically Exposed Persons (PEPs) or if business clients are on a sanctions list.
- Regulatory compliance
With non-compliance fines in the billions being racked up in 2021, regulatory compliance has evolved into a major challenge for businesses. In fact, compliance is among the key drivers of RegTech in the past few years.
As businesses realize the importance of achieving compliance, KYC and KYB are quickly emerging as indispensable processes for businesses looking to establish trust and expand into new markets.
How Does Customer/Client Verification Take Place?
Both KYB & KYC procedures follow a basic process flow to carry out the customer or corporate verification process. They include procedures like:
- Collecting personal identifiable information (PII)
- Gathering supporting documentation
- Verifying the available information & documents
KYC verification helps businesses limit frauds that result from identity theft activities. Further, it helps companies assess risks that may be associated with the customer & prevent chances of money laundering.
KYB provides businesses with effective due diligence to prevent their unnecessary involvement in fraudulent activities like terror financing & money laundering. Following Know your Business (KYB) verification enables businesses to build policies & ensure they are transacting with a legitimate business.
The Difference Between KYC (Know Your Customer) & KYB (Know Your Business)
The key differences between KYC and KYB are their broader purpose, verifiable data attributes & process flows.
KYC checks verify the identities of individuals, which requires details like the person’s name, date of birth, address, nationality, etc. The verification happens in-person or over video calls in both employee-assisted & non-assisted modules. Government-issued IDs such as PAN cards, Aadhaar cards, passports, voter IDs & driver’s licenses are the verifiable documents that the customer needs to provide during KYC verification.
How To Know Your Client With Digital KYC
The KYC verification process flow Includes the following steps:
- The customer uploads digital copies of his/her IDs over video call
- Live photographs of the customer & the documents are captured
- The captured photos are matched & verified
- The customer answers random system-generated questions to verify liveliness
- The process concludes & the KYC is either accepted or rejected
For a detailed read on everything you need to know about KYC, check out our article on Video KYC.
Know your Buisness (KYB), on the other hand, verifies the existence & examines the activities of a business. It includes checking details such as the company’s registration number, financial statements & UBO (Ultimate Beneficial Owners).
How To Know Your Business With Digital KYB
The KYB verification process flow includes procedures like:
- The verifiable company’s details are accumulated by the KYB service provider
- A background verification check is performed on the business
- The readily available data regarding the company’s financials are verified
- Business statements & networks are analyzed
KYC Or KYB – What Does Your Business Need?
KYC checks are primarily employed in businesses-to-consumer transactions whereas KYB is designed to cater to business-to-business environments.
So, a company handling B2C transactions requires a fast & effective KYC verification while bringing new customers on board. Businesses like banks, non-banking financial institutions, insurance companies, etc., can implement Know Your Customer checks mandatorily as part of their customer onboarding process.
B2B businesses, on the other hand, need a robust KYB verification process when building corporate relationships. Companies that transact with other businesses need to be vigilant when initiating new businesses & hence a Know Your Business verification procedure is ideal for such firms.
Establish Risk-Free Business Relationships With Digital KYC & KYB
Both KYC and KYB are set up with the intention of verifying the identity & activities of potential clients. These procedures ensure companies across industries take an important step towards due diligence before carrying out business.
Establishing a quick & AML-compliant onboarding process eases the client/customer journey while also effectively mitigating the chances of financial losses. Real-time customer verification platforms like SignDesk offer a seamless GDPR-compliant process that businesses can integrate at their client onboarding stage. Get in touch with the sales team at SignDesk to learn how scan.it helps you simplify your client verification process.