Why KYB checks are a win-win for accountants

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What are KYC and KYB checks?

Know Your Customer (KYC) and Know Your Business (KYB) are the checks regulated firms carry out to verify the identity of new clients and assess the risk they pose – if any – to the business.

Verification checks are a key part of any firm’s anti-money laundering (AML) process, as they help firms assess the suitability of potential clients before they enter into a business relationship with them.

What is the difference between a KYC check and a KYB check?

A KYC check verifies an individual customer, whereas a KYB check verifies a business/corporate customer.

KYC check

The KYC process involves the verification of an individual customer’s identity, using documents like a photographic ID, proof of date of birth, and proof of address.

Once the person has been verified, the next part of a KYC check is to ascertain the individual’s risk. This is generally done by checking their details against credit reference agency data as well as politically exposed persons (PEP) and sanctions lists. PEPs are people who either hold - or have held -  a prominent public or political position. Due to their high-profile roles, influence, and in many cases, wealth, PEPs are more susceptible to bribery, and corruption, and therefore, present a greater risk to businesses in terms of fraud, money laundering, and other financial crimes.

SmartSearch can run a KYC check in a matter of seconds thanks to facial recognition technology for ID verification, triple bureau reliability (data from three leading credit reference agencies), and access to the Dow Jones Watchlist – a comprehensive combination of over 1,100 different national and international PEPs and sanctions lists, and profiles of persons linked to high profile crime.

KYB check

A KYB check verifies the details of a company, including its directors, shareholders and beneficial owners, to ensure the business - and that those who own and run it - are legitimate.

While KYB checks are looking to ascertain very similar information to KYC checks, they are much more complicated to perform because they require a lot more information, much of which can be quite difficult to access. With a KYB check, there are three main levels:

Verifying the business

The first is to verify the business’s existence. This means obtaining registration details, director information and other legal documents. The primary reason for doing this in terms of money laundering risk is to ensure the business is a legitimate operation and not a shell company set up to hide illegal activity.

Identifying beneficial owners

The next stage of the check is to identify the beneficial owner(s) of the business, including the ultimate beneficial owner (UBO). This is an absolutely 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, so it is vital that a KYB check is able to ascertain this information. It is also a legal requirement in many jurisdictions to identify the beneficial owners of any business.

Verifying and screening directors and beneficial owners

Once the directors and beneficial owners have been identified, you will then need to run KYC checks on each of them. This is the same process as you would run on an individual customer, so will involve verification, screening for sanctions and PEPs and enhanced due diligence on any matches. By running checks on the business itself, and then on each individual identified as having any influence within, or financial gain from the business you are able to get a full picture of the company, and everyone involved in it. Using this information, you can then make an informed decision about whether or not to enter into a business relationship with that entity.

Why are KYB checks important for accountants?

According to our most recent report, which surveyed 500 compliance decision-makers in regulated firms, four in ten reported a rise in money laundering and financial crime attempts, while more than a third admitted their own business had been a victim of money laundering or financial crime over the past six months. Accountants are of great interest to money launderers because they can be used to register ‘fake’ businesses and shell companies, conceal the ownership of these companies, and facilitate the movement of funds through false accounting and bookkeeping. While some accountants are complicit in these crimes, the vast majority will be unaware of their role in facilitating money laundering schemes. That is why it is so important for accountants to ensure they have proper AML and compliance schemes in place so that they can identify anything suspicious and ensure they are not enabling any criminal activity.

Best practices for conducting KYB checks

According to our research, half of regulated businesses still use manual checks within their KYB processes, and of those – 1 in 4 of all regulated businesses – rely on manual verification completely. This means manually checking physical ID documents and then checking that name against sanctions and PEPs lists.

However,  ID documents can be easily faked and this can be very difficult – in many cases, impossible – to spot during a manual check. In fact, just 8% of compliance professionals are completely confident they would be able to spot a fake. It is also very difficult to run manual screening checks – not only is it a time-consuming process, but the checks result in so many false positives, it is impossible to work out what it what using manual methods. As a result, many firms start to ignore the ‘matches’, or simply don’t bother running the checks in the first place. But there is a simple and accurate way to run KYB and KYC checks – electronic verification.

How SmartSearch can help accountants with KYB checks

SmartSearch’s cloud-based compliance platforms 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 there’s no margin for human error.

Our specialist International Business Reports are the most comprehensive KYB checks on the market. Using our 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 Jines Watchlist – we are able to run reports on corporates and entities in more than 200 countries and identify and verify associated entities, directors, and beneficial owners.

Our service completes a full KYB check, and provides business identification data, shareholder and ultimate beneficial ownership details, and consolidated financial information. The service then runs full screening for PEPs and Sanctions on the beneficial owners and directors with a 97% accuracy, removing the issue of false positives. Our system also provides ongoing monitoring with alerts about any changes, ensuring customers remain compliant and audit-ready.

To discover more, visit SmartSearch.com

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