Business onboarding is a way forward to growth in the market, but it is also exposed to financial risks and threats. The company may be involved in illegal funding and other financial crimes, which may lead partner companies to legal consequences. The sanctions and penalties on the company affect its reputation as well. For this reason, rigorous KYB verification is necessary for financial security and to detect the red flags in the industry. The whole process of KYB checks involves gathering business data, evaluating it, and screening it. The business information is scrutinised to validate the legal status of the company and its financial performance.
What is Business Verification?
When the business onboards the partner company, the complete investigation to validate its legitimacy is called KYB verification. It involves data collection from the parent registry of the country in which the business is operated. Only the registered business in the parent registry is considered legitimate; otherwise, red flags are raised. The business information needs to be screened against the databases of the parent registry and regulatory bodies. The national and international regulatory bodies maintain a list of the companies that comply with regulations. So, the business must check whether the onboarding company complies with standard regulations. If not, then the business partner may face legal consequences which affect its financing.
Know Your Business Solutions
The Know Your Business is a necessary part of company onboarding, which involves data collection and screening in accordance with jurisdiction. The complete process of KYB verification is discussed below:
- Data Collection
The primary step in the KYB verification process is the collection of data from relevant registries and authorities. The business information includes its name, address, contact number, website, registration number, and tax reference number. All the collected data must be cross-checked with the data available on the public registry. The businesses’ information is sometimes missing from the public registry, so it must be screened against other official and reliable sources.
- Document Gathering and Screening
The corporation, enterprise, and financial institutions must ask the counterparty to submit the documents. The annual report, tax record, balance sheet, bank statement, and other relevant industry documents must be collected. Businesses such as online gambling, customs, banks, and insurance require licenses from relevant authorities. While business verification, it is necessary to screen documents against the authority’s records. Most of the regular authorities also issue a list of the blacklisted, sanctioned, and illegal businesses, so it is necessary to check them.
- UBO Verification
The ultimate beneficial owner, UBO, holds a significant share of the company’s assets. This percentage varies according to the country’s jurisdiction. The UBO also has voting rights in the company, which ultimately affects the company’s decision-making. While KYB onboarding the business, it is necessary to collect the shareholder’s details and identify UBO among them to ensure KYB onboarding. The name, contact number, address, tax ID, and designation of the UBOs must be collected. The screening of the UBO against databases, sanctioned lists, and blacklists helps to detect potential risks. Once the legal status of the UBO is verified, transparency in financing is ensured.
- Conducting AML Checks
If the onboarding company is involved in money laundering or other financial crimes, it may lead to legal consequences for the business partner. In KYB verification, the application of anti-money laundering checks over business is crucial. The implication of the AML checks over the business and business owners is a way forward to reduce the potential risks. Once the red flags are detected, businesses can make informed decisions. Additionally, background checks are applied to companies, which include sanctions checklists, adverse media checks, watchlist checks, and politically exposed persons’ PEP checks.
- Enhanced Due Diligence
Avoiding high-risk businesses is not the solution, but an effective way is enhanced due diligence. Enhanced due diligence is the process of monitoring risks associated with business profiles. The constant monitoring of the business helps to identify the illicit ways of funding. The regular reporting of the finances is necessary to detect the suspicious activities. The status of the UBO can be changed, so it is crucial to verify it regularly.
Final Thoughts
KYB verification is the complete process of assessing business legitimacy and financial status. The verification of the participatory chain of the UBO is also necessary to detect red flags. The AML checks applications over the business, and the business owners detect potential risks. Once the financial report of the company is scrutinized, it helps to build transparent relations. The constant monitoring helps to maintain legitimate bonds and compliance with standard regulations. Hence, the business world must understand the significance of rigorous KYB verification processes for a secure future.
