Gone are the days when customer due diligence was enough to manage the risk of your business. Business risk has evolved and customers are not the only source of risk, your merchants, vendors, affiliates, business partners, all are the source of risk for businesses. KYB screening of businesses is conducted to manage this risk. This risk is mostly for businesses that are involved in B2B relations, domestic or international.
Know Your Business or KYB screening is the process of screening businesses to maintain an understanding of the risk associated with a corporate entity. As identity screening is conducted to gain knowledge about an individual KYB screening is conducted to gain risk insight about a business entity. It is conducted for risk management and regulatory compliance.
Every business has some sort of B2B relations, let it be a minor relation with a vendor or supplier or a global relation with businesses who are your customers. These relationships are significant for every business so they must be transparent. There is no place for any ambiguity in B2B relations. Businesses need to be very careful of the changes in onboarding businesses especially when international entities are involved.
Common businesses that have high risk coming from business entities are banks, insurance companies, e-commerce, Fintech, IT solution providers, etc.
Significance of KYB screening of businesses
Below are some major reasons why businesses need to perform KYB screening on their affiliates.
Regulatory obligation
Global regulatory authorities require businesses to perform necessary screening on the businesses before initiating corporate relationships with them. Recently FATF issued recommendations in this regard. It requires the reporting entities, serving businesses to perform KYB screening on their prospects. KYB verification includes blacklist screening and UBO (Ultimate Beneficial Owner) screening.
5AMLD of the EU implemented in January 2020 increased the scrutiny on reporting entities and the 6AMLD set to be implemented in 2021 will further increase AML compliance scrutiny in the region.
Financial crime conducted through shell companies
Panama Leaks jolted the world out of the deep slumber of ignorance and highlighted another mean of money laundering, namely shell companies. Shell companies are businesses that are created especially to launder money. These companies appear as legitimate businesses and have offices and bank accounts. It is difficult to identify shell companies.
Usually, the UBOs of shell companies are criminal entities (money launderers, drug dealers, PEPs, terrorist financiers), that hide behind the shell company. In case a business is used to launder money by a shell company it will be deemed liable for non-compliance penalty.
KYB screening solution is usually used for in-depth screening of businesses provides details about the UBOs of an entity. Also, it screens company details against global blacklists and watchlists. So KYB screening creates complete transparency in B2B relations and prevents the risk of penalties or business loss.
Growth
Often businesses that are involved in criminal offenses don’t maintain longterm relations with businesses and terminates the connection once they’ve achieved their target. Or even if they maintain a longterm relation there is always a risk of loss and penalty.
Developing transparent B2B relations help businesses achieve retainable growth. Once you know the risk status of an entity you’ll be able to practice necessary risk prevention measures to control potential threats.
To wrap up, KYB verification of business is a suitable measure to manage risk coming with B2B relationships. Most of the businesses use globally applicable KYB verification solution to screen businesses in real-time. As these solutions deliver highly accurate results within seconds. It is an economical solution for risk management and requires less effort as compared to manual screening.
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