A critical component of compliance for many organizations is Know Your Business (KYB) checks. While KYB has traditionally been viewed as an extension of KYC, with many overlapping elements, it is increasingly recognized as a distinct discipline. This shift is due to the fact that companies dealing with business clients must conduct more complex and thorough due diligence in vetting them.
However, KYC is still very important for doing KYB right. That’s because when onboarding new business clients, companies have to do due diligence on every Ultimate Beneficial Owner (UBO) – typically defined as those with at least a 20% stake in the company. Businesses must make sure these UBOs are not committing fraud in any way, or appear on any international watchlists or sanctions lists. Vetting UBOs through accurate KYC is critical to this process.
What is UBO Verification?
UBO verification requires going beyond just the immediate shareholders or directors to uncover hidden ownership that may be concealed within complex corporate structures. This process involves thoroughly analyzing ownership chains to identify the true beneficiaries and ensure they are not engaged in illicit activities like money laundering, fraud, or terrorism financing.
UBO verification typically entails gathering comprehensive information about the beneficial owners, including their names, dates of birth, nationalities, and the nature and extent of their ownership or control. This data is then cross-referenced with various databases, such as government registries, watchlists, and sanction lists, as well as private sources, to ensure complete accuracy and thorough verification of every business stakeholder involved.
Proper KYC for Identifying UBOs
The first step in doing KYC for business verification is to gather detailed information about the ownership structure of the company in question. By reviewing official documents such as articles of incorporation, shareholder registries, and company bylaws, businesses can identify shareholders and directors, with the ultimate goal of tracing the ownership chain back to the individuals who truly control or benefit from the entity. It is crucial to cross-verify this information against reliable public and private databases and registries to ensure accuracy and completeness.
Once the UBOs are identified, businesses should conduct thorough background checks, screening them against various watchlists, sanction lists, and politically exposed persons (PEP) lists to identify potential risks. Leveraging advanced due diligence tools and software can automate parts of this process, ensuring efficiency and reducing human error. Additionally, businesses must implement continuous monitoring to regularly update UBO information, re-verify individuals, and track any changes in ownership or risk status.
A robust KYB process, complete with exhaustive KYC UBO verification, not only helps ensure regulatory compliance and risk management but also enhances customer insights, indirectly contributing to revenue growth and maintaining a competitive edge in the market.
The Components Proper KYC
Companies onboarding new business clients should include the following components when conducting KYC checks
Document verification
The right technology should make the document verification process easier and more efficient for companies by extracting all relevant data for analysis. In especially difficult cases, expert manual review can be used to verify the accuracy of an identity document.
Liveness check
Documents can be stolen, altered, or even completely fabricated. This makes it crucial to verify that the user providing the documents is the rightful owner. To address this, businesses can request a real-time selfie from the user to confirm liveness and match it with the provided documents. Additionally, implementing technology that verifies the authenticity of the photo and ensures it is taken in real-time can prevent users from merely uploading a photo of a picture.
Cross check with identity verification and fraud databases
Businesses must cross-check the data they receive from each user against trusted data sources and fraud databases to validate the information provided. This involves checking against all relevant data sources – both governmental and private – to verify user data.
Compliance checks and ongoing monitoring
For businesses in highly regulated industries, it's essential to screen all potential new users against various compliance regulations, such as checking if they appear on PEP (Politically Exposed Persons) lists, restricted lists, or a country's sanctions list. Additionally, businesses must conduct ongoing monitoring of already onboarded users to detect any changes in their status or identify suspicious or anomalous behavior, allowing them to take swift action to prevent potential risks.
Conclusion
In the absence of robust KYB processes, companies are at a greater risk of fraud and regulatory non-compliance. Therefore, companies that deal with other business entities must strive to implement correct KYB, and this includes doing in-depth KYC checks on all those associated with the ownership of a business.
If you are interested in learning more about how Caf can help with all of your KYB and KYC needs, reach out and book a demo now.
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