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KYB & AML: What is KYB in the AML process?
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KYB & AML: What is KYB in the AML process?

What is KYB in AML? Understanding business identity verification and compliance for optimal efficiency with anti-money laundering regulations.

KYB Meaning - Know Your Business (KYB), otherwise known as corporate verification, is a B2B due diligence process of verifying and identifying the legitimacy of business entities. KYB provides the insights required when forming a new business relationship to decrease risk and comply with regulation.

Anti-Money Laundering (AML) is a regulatory process that works in harmony with KYB. Preventative measures to money laundering include checking for Politically Exposed Persons (PEPs), sanctions, adverse media, and watchlists. In the context of KYB, AML is often used to to verify directors or beneficial owners of a business or to verify that the business itself isn't sanctioned or subject to adverse media.

But how closely aligned are KYB and AML? In short, there are multiple crossovers between KYB and AML including the purpose of the processes, how to collect information, and how the information provided leads to a reduction in financial crime.

This article provides all the information required to understand KYB and AML and how to best approach combining the two processes for an enhanced compliance program.

Understanding AML and KYB regulations

In the realm of Know Your Business (KYB), compliance with Anti-Money Laundering (AML) regulations is paramount.

AML and KYB regulations serve as the cornerstone for preventing business from being associated with money laundering, terrorist financing, and other illicit financial crime. Understanding the intersection of KYB and AML regulations is crucial for businesses to uphold their integrity and remain compliant.

One of the most recent primary AML regulations relevant to businesses seeking KYB compliance is the 6th Anti-Money Laundering Directive (6AMLD) which placed a focus on changes to criminal liability.

Before 6AMLD, money laundering prosecutions only applied to individuals, whereas the new directive also expanded the scope to include ‘legal persons’ including organisations, companies, and partnerships.

This has led to regulated entities taking a stricter approach to business verification as businesses themselves are liable for any AML failings of their staff.

You can read our full guide on the latest AML regulations here.

What is the KYB process?

The KYB process involves collecting and verifying information on a business. The first step to this is to gather the business’s legal name, registration number, and date of corporation.

Other identifying information such as address and country of operation can also be helpful to reduce the work required when performing verification and risk assessment.

Once the relevant information about the client has been obtained, businesses have two main options to verify and onboard the client:

  1. Automated KYB verification

Businesses can use KYB software to gain all the information they require on a business. This involves using a system that aggregates multiple data sources into one application, usually feeding into to data sources such as Companies House in the UK and the Securities and Exchange Commission (SEC) in the United States.

An advanced system will pull business information into an easily digestible report and will include key data such as the business overview, financials, credit, ownership structure, beneficial ownership, and adverse information.

This report can then be reviewed by a member of the compliance team to cross-check internal risk protocols and make recommendations or a decision on if the onboarding should be successful.

  1. Manual KYB verification

Alternatively, businesses can manually verify information about the client by using sources such as Companies House, publicly available sanctions lists, credit reference agencies, and other specialist data providers to gather the information they need on financials, beneficial ownership, credit, and adverse media.

This method of verification is more time consuming as it requires a significant amount of human input to gather the relevant information and perform the verification. It also can lead to missed information or errors due being a manual approach.

Manual verification is preferred by businesses who have access to a large compliance team or rely on legacy systems and where changing to new software isn’t feasible.

AML in the KYB process

Once the initial KYB check has been completed and initial information returned, businesses can then perform an AML check on the client and its shareholders.

This involves checking the business and shareholders against global Politically Exposed Persons (PEPs), sanctions, and adverse media lists to obtain information that could impact the business relationship.

If a return is found, the first step is to conduct a manual review to verify the information matches against the business in question. Risk protocols should also be referenced here as it isn’t as simple as a yes or no to onboarding should a match be returned.

For example, if a shareholder of the business is politically exposed, this doesn’t necessarily mean that the onboarding attempt should be rejected. Ongoing monitoring frequency may be increased on the client due to heightened risk.

If the client or any of its shareholders are sanctioned, the onboarding attempt should be rejected as having a business relationship in this context will breach money laundering regulations.

There are various nuances to AML in KYB processes which is why regulated entities produce their own risk-based approach to include various thresholds for acceptance of onboarding or marking certain clients as high-risk.

What industries need KYB and AML compliance?

KYB and AML checks are essential across various industries and businesses, particular those that involve financial transactions or are susceptible to exploitation by criminals for money laundering. Some of the main industries who require KYB and AML include:

  1. Financial institutions

KYB and AML in banking, credit unions, and other financial entities are at the forefront of implementing compliance. These institutions engage in large volumes of transactions with corporate clients, making them vulnerable to money laundering and fraud.

  1. FinTech companies

With the rise of digital payment platforms, peer-to-peer lending services, and cryptocurrency exchanges, FinTech businesses often deal with high volumes of transactions and face unique challenges in verifying the identities of corporate clients.

  1. Legal and professional services

Law firms, accounting firms, and other professional service providers frequently engage with corporate clients for various purposes including legal representation, financial advice, and compliance assistance. KYB checks help these service providers ensure that their clients are legitimate.

  1. Gambling service providers

Game developers, platform providers, and casino specialists deal with corporate clients as gambling operators look to stand out in the competitive gambling market. Traditionally, gambling operators have been susceptible to money laundering and financial crime with $475 million+ in fines dished out in 2023 alone due to AML failings. It is critical for gambling operators to perform AML screening on their customers but also the B2B providers must employ KYB checks to avoid reputational damage and non-compliance.

KYB checks are essential across a wide range of industries and businesses that engage in financial transactions or provide services to corporate clients. By implementing robust KYB procedures, organisations can mitigate financial crimes, comply with regulatory requirements, and establish trust in their business relationships.

Benefits of KYB and AML Compliance

Ensuring KYB & AML compliance not only safeguards businesses from fines, suspensions, and reputational damage due to regulatory breaches but it also builds trust among stakeholders.

By conducting thorough due diligence on corporate clients and complying with global regulations, companies mitigate the risk of being associated with illicit activities and financial crime which, in turn, preserves reputation and integrity.

KYB and AML compliance also instils confidence in customers and partners, facilitates smoother onboarding, and enhances credibility.

Using technology to manage KYB and AML Checks

Business can leverage advanced KYB and AML solutions to streamline the process. This can involve utilising an identity verification platform which can automate the process of authenticating corporate clients and use multiple data feeds to enhance the authenticity of results.

FullCircl works with 700+ clients to verify & onboard clients, with powerful KYC, KYB, AML, and anti-fraud software including information on 365 million global entities, proprietary technology, and an agnostic approach to global data sources. By utilising FullCircl, businesses are safe in the knowledge their onboarding is compliant whilst building trust with their clients.

Contact us here for a free demonstration of the platform.

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