Role of Business Verification Solution in Risk Mitigation
The Panama Leaks scandal of 2016 revealed several problems with the worldwide financial systems of corporations. New regulations need to be put in place to make sure that businesses applying for bank accounts are legitimate and not just shell corporations used to launder money. The new rules also made it clear that the companies responsible for opening and overseeing these accounts needed to have clear lines of power regarding money and decisions.
These rules amount to the “Know Your Business” framework, which is another name for the business verification system. Therefore, what is it? For what reasons must banks and other financial organizations be cognizant of and compliant with it? How does a financial institution (FI) go about performing a KYB check, and what information is required to do so? This post will provide a brief overview of the answers.
Contents
An Explanation of Know Your Business
Financial institutions use a process called “Know Your Business,” or business verification, to ensure the legitimacy of businesses they want to onboard as customers. Discovering the business’s legitimacy, identifying its owners, and assessing the risk posed by ownership are all part of this process.
Why is KYB Compliance Crucial?
Know Your Business compliance is very important for many reasons. Business verification, like know-your-customer (KYC) processes, helps prevent financial crimes like fraud and money laundering from reaching financial institutions. It confirms the identities of all parties involved in a business transaction and states whether they are legitimate.
However, business verification procedures do more than just protect banks from fraud. Additionally, they protect them from legal action in the event that they disobey regulations meant to prevent financial crimes, such as the funding of terrorism and money laundering. The consequences for organizations that fail to adequately prevent these crimes include fines, increased compliance oversight, jail time for company executives, and the possibility of losing their certification.
Know Your Business verification also protects a company’s standing as an honest and trustworthy partner in business. If the organization oversees financial crime, is found to be breaking industry rules, or is seen to be doing business with questionable companies and entrepreneurs, its credibility will take a hit. Both current and potential customers have the option to cut ties with the firm and go elsewhere for their business needs. In any of these cases, a company’s chances of success might take a major hit.
What is the Best Way to Verify a Company?
- Confirmation of a Business
First things first, when doing a Know Your Business, it’s essential to make sure the company actually exists and that its financial operations are legitimate. Businesses can rest assured that this system is in place and that the company they are doing business with is not engaging in any illegal activities with its profits.
For businesses to complete the verification process, official documents must be requested and reviewed. Here are the requirements to determine if a business is legitimate:
A real business address and name
Registration or incorporation proof
Details regarding the make-up of the ownership
- Verification of the People Running the Business
Once a company has confirmed their authenticity and feels comfortable doing business with them, they should investigate further. Consequently, businesses can lessen their risk exposure by learning whether the company’s leaders are law-abiding.
- UBO Verification
It is essential to determine who the UBOs are, or significant corporate stakeholders. A UBO is anyone who has control or ownership of 25% or more of the company.
A company’s business verification process will ensure that each UBO is a real person who isn’t involved in fraud, isn’t on any sanction or watchlist, and is participating in corporate KYC. To protect themselves from dishonest individuals, organizations should verify their identification and check if they are on any watchlists.
Summing Up
Now more than ever before, business verification is essential for financial institutions to ensure that dishonest individuals are not hiding their illicit money transfers behind fictional companies. The process is more involved, though, because we need to verify the firm’s and its owners’ identities and evaluate their level of risk. Yet, a full anti-fraud and AML compliance solution that incorporates digital Know Your Business solutions could be useful.
