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Challenges of Know-Your-Business (KYB) Verification in Banking System

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Banks and other financial institutes are bonded to rigid regulations. They must meet these regulations to work in a secure environment. There are various businesses, like banks, that offer their services to other companies. When starting to work with a new company, they must confirm its identity. 

Know-Your-Business (KYB) verification is a solution to onboard any company confidently. It assists companies in business verification and examines detailed information about the people involved. The KYB process is essential to ensure the company is not involved in illicit activities such as money laundering, drug trafficking, and other financial scams. There are various checks to confirm the identity of the business verification steps. These checks are to examine the business’s legitimacy and unveil the identity of the ultimate beneficial owners (UBOs) of the business. It also monitors the real-time transactions of the businesses and examines past activities, conduct risk assessments, according to onboarding company policies.     

Security Checks of KYB Verification

KYB verification has significant importance in financial institutes before onboarding a corporate company. The primary purpose of KYB is to verify business owners’ legitimacy. It is designed to comply with the Anti-money laundering (AML) and Combating-financing terrorism (CFT) regulations. KYB verification checks involve gathering information about business structures, shareholder activities and verifying these thoroughly with advanced technology. Given below is an overview of the KYB checks:

  • Registration 

For online KYB verification, customers must first register on the business verification platforms. They simply need to provide personal information such as the firm name, licence number, and contact data.

  • Existence Check

This step is to verify the accurate location of the business. It verifies the business’s existence and ensures the company is visible in the reallocation. Most scammers register bogus companies, which are only present on the papers. For that, KYB verification software cross-checks the registration number from the country’s corporate registry authorities’ records. It matched the provided registry number and companies name to ensure the legitimate location of the company.  

  • Validation Check   

After the location is verified and ensured that the company physically exists. Now, it is time to verify the documents and information submitted by the company representative to check the papers’ legitimacy. This is done by attesting the documents with the help of an AI technology framework and optical character recognition (OCR) technology. KYB requirements for documents have various visible security features such as fonts, borders, and signatures. Business verification software checks these features and cross-references across the AML/CFT and politically exposed persons (PEPs) watchlists. 

  • Mitigating Risk 

Once the company has been verified, the banks and financial institutes verify the business activities for risk assessments. For this, KYB verification evaluates the background activities, personal information, shareholders’ data, financial statements, and the industry they work in. This profile verification assists in onboarding companies and taking essential steps according to risk-based assessments. If the company is working from third-world countries or doing business in high-risk industries, banks can mitigate risk with this check. 

Challenges Banks Face During KYB Verification

 KYB verification has various benefits, but implementing these checks at some companies is challenging. Business verification is a lengthy process because of the complexity and diversity of the business they serve. Here are some challenges which banks face during KYB verification:

Siloed Information 

Businesses have complex nature of data, especially when banks are dealing with multinational companies. They have intricate business owners’ structure which is confusing to decode for human resources. It is challenging for them to verify the identity of the ultimate beneficial owners and understand the ownership chain. Moreover, in financial institutions such as banks, various departments are working on the same project. Retail banking and corporate banking are handled by the same resource, which complicates them and leaves the KYB verification at risk. Technology ironically enhances the KYB verification process and eliminates this siloed information gap by filtering all the information separately by folder. 

Time Consuming 

Many banks opt for automated KYB processes to meet Anti-Money Laundering (AML) regulations and protect their corporate clients. Various software programs facilitate straightforward KYB compliance through electronic authentication methods, but it is still time-demanding. Because the KYB verification is complicated, the banks must verify the business and conduct the KYC of all ultimate business owners. Furthermore, banks must constantly analyze their future operations to ensure customers do not disrupt their services. These checks take time without the effective KYB verification tool to reap accurate results, and customer experience is challenging. 

Costly Process

As mentioned in this article, KYB verification is mandatory for most companies before onboarding other businesses. KYB business verification is not only to verify the identity across these checks but companies also have to monitor real-time activities and continuous risk assessments to protect themselves. All these checks are essential to comply with anti-money laundering (AML) regulations.  

Ensuring these regulations take time and is costly for the companies that have to hire a human resource for these checks. To comply with these industries, usually have teams of regulatory compliance and continuous risk assessments. To overcome this challenge, companies are outsourcing this cumbersome and herculean task to save time and cost. This regulatory compliance meticulously conducts KYB verification and reaps accurate results.

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