Every year we read about staggering fine amounts paid by some of the largest banks in the world as a result of noncompliance of Know Your Customer (KYC), Know Your Business (KYB), and Anti-money Laundering (AML) regulations. As per the AML Fines 2021 Report1, financial institutions alone were fined $2.7 billion in 2021 for compliance and due diligence failures.
AmBank Malaysia, for example, paid $700 million in fines1 to the Malaysian government for failure to report PEP transactions and suspicious transactions to the regional authorities. ABN Amro agreed to pay $574 million to the Dutch authorities1 for inadequate KYC checks and customer transaction monitoring and failure to report Suspicious Activity Reports (SARs). Even companies like BitMex paid a fine of $100 million2 for hiding illicit transactions and failure to gather appropriate information on its customers.
Non-compliance penalties result not only in financial consequences but also reputational damages, prompting deeper investigation into the banks and their management.
Hence, organizations have a massive responsibility of ensuring adherence to compliance and thorough diligence to customers and businesses that they onboard. Understanding who they work with is imperative to avoid not just becoming a front for money laundering but also becoming unwitting parties to crimes like drugs, human trafficking, prostitution, and more.
For industries like financial services, these regulations are mandatory.
KYB refers to the controls that a company puts in place to understand the risks posed by new and existing business relationships. These controls ensure their clients are not engaged in criminal activity. KYB is similar to the KYC process, except in the latter, the user is required to be identified. While KYC requires potential clients or users to be verified, KYB requires verifying the legitimacy of a corporate client or entity.
Principal Requirements for KYB
Criminals have evolved from using individuals to disguise their illicit activities to using shell companies3 and other innovative means. Thus, KYB is done in part to identify who owns these firms or would benefit from its transactions also known as “Ultimate Beneficial Owners” (“UBOs”). This process ensures that the businesses they are dealing with are legitimate, not listed on any sanctions or embargo lists, and not involved in any money laundering or illegal activities.
Standard KYB includes:
- a) Verification of business data and registration documents of an enterprise
- b) AML screening
- c) Verification and screening of Ultimate Beneficial Owners (UBOs)
This may include checking a company’s business address, registry, license, and the identities of UBOs and shareholders holding more than 25% of a company’s shares.
The process of correctly identifying these beneficial owners can be challenging. In some cases, there can be multiple UBOs, multiple layers of ownership, and owners that have interests and shareholding in different types of companies. This makes the vetting process more tedious and complex, requiring a thorough investigation of the entity's documentation and continuous monitoring of its business activity and transactions.
Stringent KYB Policies avoid drifting into compliance failure
Operating any financial services company requires constant due diligence to maintain compliance. Organizations are required to perform stringent due diligence on corporate customers to avoid falling victim to financial fraud, as well as mitigating the risk of unknowingly dealing with businesses that are involved in money laundering or terrorist activities.
In their endeavors to provide better customer experience, organizations have moved to digital onboarding, which aims to reduce the onboarding time from hours to just a few minutes. However, this comes with additional risks of failure to conduct adequate KYC and KYB checks.
Failing to perform KYB properly will not only lead to fraud, fines for non-compliance of regulations, and the resultant reputational risk, but can also lead to the facilitation of organized crimes like firearms or human trafficking, smuggling, and the drug trade. With increasing levels of financial crime comes an increased scrutiny by regulators across the globe. Global authorities are coming down heavily on any defaulting organization.
Due to the complexity of KYB, rapid digitization, stringent regulations and fines, and the evolving complexity of digital crimes, institutions like banks, Financial Institutions (“FIs”), payment service providers, and eCommerce platforms are constantly under pressure to remain ahead in terms of technology and trends. Organizations are often faced with trying to find the right balance of staying compliant in the most cost-effective way. Hence, they are on the lookout for third-party technology providers that can provide secure and compliant platforms while also achieving the goal of increased customer satisfaction.
For any regulated organization, KYB is an inevitable part of constant risk analysis and thwarting financial fraud and organized crime. The magnitude of importance of due diligence while onboarding corporate clients stems from the dire need to adhere to regional and global regulations, and the amount of money and reputation at stake. A robust KYB framework, in collaboration with automated tools and expert supervision, is a key to remaining compliant.
Need help with your KYC/KYB Challenges?
If you find yourself struggling as an organization to keep up with the demands of processes like KYC or KYB, we want to hear from you. At TaskUs, we understand the need to stay a step ahead and constantly innovate new technology, techniques, and training methodologies. Our Ridiculously Smart Teammates manually review, sort, and decipher data to quickly and efficiently uncover trends in harmful activities. We also have investigators in place to monitor any signs of fraud and respond to user-reported incidents.
- KY-Everything
- With our comprehensive suite of KYC, KYB, KYT, and additional identity verification offerings, we safeguard and expedite platform onboarding by verifying the identity of new users, platform sellers, merchants, and other third parties.
- Enhanced Due Diligence
- We supercharge due diligence for business and higher-risk customers by combining automation and omnichannel capabilities to verify data such as ultimate ownership.
- Fraud Detection
- We have workflows, automation, and case management tools to process chargebacks and disputes, validate transactions, and address account takeover troubles.
We believe it takes the right mix of highly trained team members and cutting-edge technology to create the strongest risk and response methodologies in the battle against financial threats. While we may not outnumber the bad actors, we will always find ways to outsmart them.
