Know Your Business (KYB): Stay compliant and protect your firm with business checks

As the threat of fraud continues to rise, UK businesses know they must do all they can to identify and mitigate financial crime. Most understand that Know Your Customer (KYC) measures are a huge part of any anti-money laundering (AML) strategy. However, there is another equally important process called Know Your Business (KYB) that regulated firms must include within their overall compliance processes in order to comply with AML regulations, reduce fraud and protect their businesses, financially, leally and reputationally.

What is a KYB check?

KYB checks are the process by which a regulated firm verifies any potential business customers in order to comply with AML regulations. This verification will include the confirmation of the legal and financial status of the company, as well as identifying key individuals within both the organisational and ownership structure of the business.

The EU’s money laundering directives – which have been transposed into UK law - dictate that every business in the regulated sector must apply a risk-based approach to AML. This means that for regulated firms, running KYB checks is a legal requirement, and therefore, should form a key part of their AML and compliance process.

Why are KYB checks important?

Business checks are a vital part of any firm’s onboarding process because they enable a company to verify the identity of corporate customers, which in turn, helps identify and prevent money laundering, fraud and other financial crimes. By running full and comprehensive KYB checks on a business, including how it is structured and who is directly benefiting from its profits, a firm is able to identify any corrupt or fraudulent business practices and prevent their own business from becoming an enabler of financial crime.

What should a KYB check include?

In order to run a KYB check, regulated firms need to obtain essential details about the business, including the existence of the business, the identity of those with significant control, and details relating to its annual returns and statements. These details must then be cross-referenced with several reputable sources to ensure the information is robust. A business check includes two steps:

Step 1 – verify the business

The first step of a KYB check is to ensure that the business exists in the real world, and that its financial activities are legal and legitimate. Running these checks gives regulated firms confidence that the business they are looking to work with is not funding illegal activities. This part of the check will involve gathering basic information about the business, including:

• A valid business name and address and basic contact information.

• Proof of incorporation or registration, a VAT number if VAT registered, and details about relevant licenses.

• Financial information including annual returns and statements, as well as Profit and Loss (P&L) information where available.

• Details about the ownership structure, including ultimate business owners (UBOs), shareholders and anyone else with a significant role or financial stake in the business.

Step 2 – verify the people behind the business

Once the first step of the KYB process has been completed and the regulated firm is confident that the business they are looking to work with is legitimate, the next step is to take a look at the individuals involved in the business.

This is a critical step both in terms of determining the ownership structure of the business, and the source of its funds. Setting up ‘fake businesses’ in order to clean dirty cash is one of the most common ways in which money launderers operate. In this case, the business itself may well appear legitimate, and it is not until further due diligence has been carried out on those involved that the illegal activity is uncovered.

The first stage of the business check should have identified each of the key stakeholders in the business – the UBOs – which includes anyone who controls the company or has an ownership stake of 25% or more. To do this, firms need to run what is known as a corporate KYC on the individuals identified, this will include:

• Identification and verification

• Screening for sanctions and PEPs

• Enhanced due diligence on any matches

By running checks on both the business and everyone who has a stake in that business, regulated firms can get the full picture of the company and everyone who stands to gain from it. With this information, the firm can then make an informed decision about whether or not to enter into a business relationship with that company.

You can find out more about what a KYB check should include here: What are KYC & KYB checks?

Do I need to perform KYB checks?

Any business that is covered by anti-money laundering regulations - basically any sectors that handle client money - must apply a ‘risk based’ approach to AML, which includes KYC and KYB checks.

Firms that need to run business checks

The regulations apply to businesses in a wide range of different sectors, including (but not limited to):

• Banks and financial institutions

• Insurance

• Financial services, including investment firms

• Trust and company service

• Accountants – find out more about why KYB checks are so important for accountants here Why KYB checks are a win win for accountants

• Solicitors and legal firms

• Estate agents and property development firms

• Money service businesses i.e. exchange businesses, payment services

• High value dealers – including car dealers, art dealers

• Cryptocurrency

• Gaming and gambling

But even those not regulated by AML rules should be doing proper due diligence on their potential customers to prevent financial crime and protect their business from financial and reputational damage.

How can regulated firms comply with KYB requirements?

The best way for regulated firms to comply with KYB requirements is to have a robust business checks process in place. This will need to include identification and verification services, source of funds checks and the ability to identify UBOs within the business. Once UBOs have been identified, the KYB process will then need to include KYC on those individuals in the same way that KYC would be performed on an individual customer. This should therefore include verification, screening for sanctions and PEPs and enhanced due diligence where any risk is identified. This will ideally consist of adverse media analysis, anti-fraud checks and source of funds checks.

As with a good, thorough KYC process, a robust KYB strategy will also include ongoing monitoring, using real-time data, so that if the risk level of the business – or key stakeholders within the business – changes, the firm is made aware immediately and can take action if appropriate.

What is a good KYB strategy?

Running KYB strategy manually is possible, but is hugely time consuming and can be inaccurate, as it is almost impossible to cross check enough data sources manually to get a true and up to date picture of a business client. The easiest way for firms to protect their business and stay AML compliant is to adopt a third-party KYB solution.

What is the easiest way to protect your business and stay compliant?

SmartSearch offers one of the most robust and accurate KYB solutions on the market.

SmartSearch’s cloud-based compliance platform can run full KYB checks in a matter of minutes. Not only is this much quicker than running checks manually, but it is also more reliable, as multiple sources can be checked instantaneously, and there’s no margin for human error.

Using triple bureau credit agency functionality, and cross-checking with data from a wide range of global and domestic data sources- including Companies House and the Dow Jones Watchlist – SmartSearch’s unique business check solution can run reports on corporates and entities in more than 200 countries, and identify and verify associated entities, directors, and beneficial owners.

It completes a full KYB check, provides business identification data, shareholder and UBO detail and consolidated financial information. As with all SmartSearch checks, the service also includes full screening for PEPs and Sanctions on the UBOs and directors and then provides ongoing monitoring with alerts about any changes, ensuring customers remain compliant and audit-ready.

The KYB service is quick and easy to use - customers simply enter the business name, postcode and/or city - and all the information they need to run a full and accurate business check will be delivered in a matter of minutes.

The KYB solution can even be integrated with a client’s existing customer database enabling them to streamline their processes by avoiding duplicate inputting and allowing business reports to be delivered as part of their existing workflow.

To find out more about how you can future-proof your organisation with business checks speak to an AML expert today!