Mandatory KYC compliance came into force to curb the flow of money for crime and fraud. It required financial firms to maintain a system of verifiable information about each customer’s identity. This was to ensure their customers are indeed, who they claim to be.
However, banks weren’t required to identify the stakeholders and beneficiaries of the businesses they served. This allowed the identity of bad actors to be concealed when high-value transactions were conducted on their behalf. This gap was fixed in 2016 by FinCEN with the “Customer Due Diligence Requirements for Financial Institutions,” or KYB. It makes it incumbent upon firms to verify the name of the person to whom a business is registered, as well as other identities like the acting chief executive and directors, and anyone else who has a stake of 25 percent or more in the business.
Subsequently, many regulatory changes in the PSD2, 4AMLD, and the GDPR, required companies to verify the businesses they transact with and their Ultimate Beneficial Owners (UBOs). The process is Know(ing) Your Business or KYB. The 4AMLD, in particular, places onus on EU member states to maintain central registers of company incorporation and ownership, and make the same accessible to all entities for verification and onboarding.
Any financial institution, payment company or merchant acquirer, who deals with money transfers; is required to perform a KYB-check of companies with whom it does business. This includes verification of the company registration, business licence updates, and identity of directors and other owners. Requirements may range from addresses and date of birth, to passport, driving licence and bank statement. Checks may also be performed against sanctions, PEP, Disqualified Directors and Adverse Media checks, based upon the country, nature of business, value of transaction and any suspicious reports.
The identity of the owner and other stakeholders are verified using public registers and automated AML systems.
How does it impact you
Non-compliance, leads to risks of exposure to money laundering and terror financing activities. Besides, if due diligence of KYB is not performed, it may at any point potentially damage the brand integrity and profit baseline with penalties for non-compliance.
Automated KYB Compliance
Verification of the identity of the owners of a business is a time-consuming manual process of research into a company’s ownership structure and documentation. As the disclosure requirements vary by jurisdiction, establishing the identities of a business’s beneficial owners is often very cumbersome. Thus, firms keen to stay compliant are looking at electronic identity verification (eIDV) to automate the verification process.
The complex regulatory environment has brought about a sophisticated method for seamless EDD using an automated system of international address verification. Real-time data checks and searches on companies, directors, beneficial owners, and ID documents, give access for KYB compliance. All of this provides proper analysis on any name of a beneficial owner or director.
Data is pulled from:
– global corporate registries
– government registers and public records
– global PEP and Sanctions databases
Ongoing monitoring ensures businesses remain compliant, with a system of automated checks and alerts in place. The API enables ease of integration for quick retrieval of information, sharing to appropriate parties, coordinating response and flagging cases for manual review.