KYB or know your business checks are essential to onboarding and monitoring corporate customers. They help you understand the people behind the organization and prevent money laundering. Here's a brief rundown on the essentials of KYB, ultimate beneficial ownership, and corporate onboarding.
Operating any organization requires near-constant risk analysis to ensure compliance and best practice. It's crucial you don’t fall foul of anti-money laundering and counter-terrorist financing regulations.
Regulated organizations are required to perform stringent due diligence on corporate customers. This is partly to identify who is actually controls the entity and who profits from its operations. Checks performed on corporate customers form part of a compliance process known as know your business or KYB.
KYB, or know your business, outlines the process an organization goes through to verify the legitimacy of a corporate counterparty, and to assess the levels of risk associated with that customer or third-party supplier.
KYB is part of a compliance process to prevent money laundering, terrorist-financing and other types of financial crime. It helps organizations maintain compliance and mitigate risks. Understanding an organization’s ownership structure enables you to make risk-based decisions about whom to work with.
Management of corporate onboarding can be complicated and time consuming. Because of the risks associated with money laundering, bribery and corruption, and counter-terrorist financing, many different checks and sources of data are needed to uncover an accurate picture of ownership and risk.
KYB processes are designed to highlight to compliance teams what risks a corporate customer might pose. Each organization will have its own risk appetite and will be subject to different regulation, based on the jurisdiction it operates in. This makes KYB nuanced, and so the approach to due diligence and risk monitoring needs reliable, yet flexible and adaptable.
Digital compliance solutions can help resolve some of these challenges, providing access to KYB data sources and automating compliance workflows aligned to different regulation.
The KYB due diligence process relates to identifying and understanding who owns and controls a business i.e., knowing who its ultimate beneficial owners (UBOs) are.
UBO stands for ultimate beneficial owner. It defines the legal entity or individual that you will be doing business with. Identifying UBOs is a cornerstone of KYB activity and is essential to understanding source of funds, what financial transactions are going where, and who is profiting from an organization.
Organizations will perform a risk assessment on their corporate customers and third-party suppliers to build a picture of risk. In the process of due diligence, compliance teams carry out investigations involving numerous data checks to identify UBOs and verify they are not sanctioned, they are legitimate persons, or what level of risk the UBO might pose.
To esnsure compliance and best practices, KYB is an integral part of risk management. It is also a moral obligation. Failing to perform KYB can land an organization in legal hot water, but it can also lead to perpetration of crimes like human trafficking and drugs trading.
Working with corporate customers and third-party suppliers is more complicated than dealing with individuals. There is more investigation needed to uncover UBOs – even if they are legitimate – and thoroughly vet a business entity. Often there will be more than one UBO, which multiples the complexity of KYB and the tasks to be undertaken during due diligence.
Changes to supply chain due diligence, anti-money laundering, and counter-terrorist financing regulation is moving forward apace. In many instances, adoption of compliance solutions or regulatory technology is supporting compliance with these regulations, automating KYB processes with integrated data checks.
Digital transformation means organizations don't have to rely on manual effort and shared databases to identify corporate ownership structures or match UBOs to a company. And, when new regulations are introduced or renewed checks are needed on a corporate customer or third-party supplier, this is easier to implement and manage using a digital solution.
The reality for organizations who need to complete KYB at pace and scale in a global, digital world is that automated compliance solutions are the only sensible option. But compliance people will always be needed in a KYB process.
Compliance professionals review outliers, assess discrepancies, check bank records, and review other assets in a portfolio. The compliance professional cannot be replaced when it comes to the "sniff test" either – i.e., does this organization feel right?
An automated solution can acquire and present KYB data quickly, but humans analyze it to create a full picture of risk.
Regulatory technology or regtech can help untangle the complexity of UBO data and corporate ownership, perform data checks and prompt workflows, then it can bring compliance people into the process to make risk-based decisions.
An automated KYB process will make use of global datasets and populate new records for corporate accounts. It also returns information pertaining to UBOs, for example are they sanctioned, a politically exposed person (PEP), are they subject to adverse media stories, as well as other related background checks – all of which can be automated. This saves the compliance professional valuable time and helps them create a reliable picture of a corporate structure.
KYB is a vital part of risk management and of combating financial crime. The intensity of due diligence in corporate onboarding relates to the complexity of corporate structures, access to data, the global nature of businesses and regulation, and the pace of change.
A robust KYB process, supported by automation, and controlled by professionals, is a useful way to unpick this knotty compliance challenge.
If you are onboarding or monitoring corporate customers and third-party suppliers, please get in touch with the Moody’s Analytics KYC team, we would love to help.