Standard Know Your Customer refers to the process of client identification and verification. Nevertheless, the term business KYC is slightly different. It is defined as the process where businesses are identified and verified instead of clients for the sake of partnership. The increasing prevalence of fraud makes it impossible to rely only on customer verification when selling services. Being able to verify any firm you begin a business connection with is crucial for successfully protecting businesses, meeting regulatory obligations, and mitigating fraud threats. Know Your Business (KYB) refers to this procedure for corporations.
What is the Significance of Business KYC?
It is essential to know your customers well and out during client onboarding so companies can identify any risks they may pose to business relationships. Banks and businesses throughout the globe are now faced with more stringent than ever before criteria for know-your-customer (KYC) procedures as a result of the global effort to fight illegal activities such as money laundering and financial crime. The documentation required to register a business usually includes this information, and it is also easily accessible online. Hiring a business KYC service could be a good idea if doing business KYC takes up too much of your time.
The Obstacles Faced by Business KYC
Compared to business KYC processes, individual KYC procedures are shorter, easier, and cheaper. The business KYC procedure has many major issues, the most important of which are:
- Insufficient Information
It is inevitable that banking institutions may come across mistakes and discrepancies in business registration records and filing histories while trying to validate a corporate customer’s KYC information in another jurisdiction. The financial sector is particularly vulnerable to the effects of inaccurate data as decision-making is heavily dependent on it.
- Authentication Mistakes
Even though such investigations are usually unjustified, regulated companies spend a massive amount of money while verifying false positives. If businesses do not conduct thorough PEP and sanctions screening, they will be subject to heavy penalties under the rule. This applies regardless of whether the screening returns a false positive.
- Laborious and Time-Consuming Business Onboarding
For companies and financial institutions implementing business KYC, the true cost of customer screening before enrolling users is a continual cause of concern. Either the corporate customer decides not to onboard, or the onboarding institution and prospective client decide to scrap the project due to the amount of work involved.
- Continuous Monitoring
Business KYC issues continue even after customers are onboarded. Everything from company structures to ownership to business objectives may and will change. A company that was able to pass a Know Your Customer (KYC) check during onboarding can nonetheless fail to meet future compliance requirements. Current low-risk consumers may need to be reclassified by banking, financial services, and insurance (BFSIs) due to the dynamic nature of AML/CTF regulations throughout the globe.
How Businesses Can Conduct Corporate KYC?
Additional crucial pointers that can assist companies in carrying out business KYC checks are:
- Gathering corporate and stakeholder data. This includes the legal name of the company, its location, and any business KYC paperwork, such as a certificate of incorporation. If the business is a shell, you can tell by looking at these features. Information on the company’s UBOs, which are people with a 25% or more ownership share, should not be overlooked. At the very least, you must check their names, DOBs, residences, and ID numbers.
- Checking the data that has been gathered. Data verification and cross-checking are essential steps in the business KYC process. For example, after the identification verification process, firms are obligated to ensure that every UBO is a genuine individual who is not enumerated in any international or domestic sanction or watchlist. Businesses are protected against potential harm by this measure.
- Assessing the potential value of a potential commercial connection. After receiving the results of the business KYC check, companies need to determine how risky it is to do business with the examined firm. Businesses may also utilize this data to assess the relationship’s possible advantages, including additional service or market access. Companies may benefit from business KYC when deciding on prospective business partners, even though it primarily aids in complying with legal rules and protecting the company from criminal actors.
In A Nutshell
In conclusion, companies should remember that business KYC requirements vary by country and company. Some industries are more demanding than others; for instance, the banking sector demands copious amounts of paperwork and strong verification. Conversely, although still complying with regulatory requirements, the telecoms industry operates under relatively lax rules. In most cases, however, companies will need to verify the company’s legal registration. It helps organizations mitigate the risk of business fraud and ensure the prevention of financial crimes.
