To deter such activity, Congress deemed federal legislation necessary to collect beneficial ownership information (BOI) for entities formed under US state laws. Known as the Corporate Transparency Act, this legislation was passed by Congress in January 2021 and came into effect on January 1, 2024.

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a US federal law aimed at increasing transparency in corporate ownership. The regulation requires certain individuals who establish a company in the United States to provide the Financial Crimes Enforcement Network (FinCEN) with specific information relating to the company’s beneficial owner(s), including:

• Full name.
• Date of birth.
• Current address.
• A distinctive identification number, such as from a passport or driver’s license.

Those subject to the law, known as “reporting companies”, must also update FinCEN with any changes to previously reported information. 

The CTA falls under the scope of the Anti-Money Laundering Act of 2020 (AMLA) and is part of the National Defense Authorization Act 2021 (NDAA), which required FinCEN to create a beneficial ownership registry that would oblige over 32 million businesses to file details of their beneficial owner with the US government.

How did the CTA come about?

Prior to the CTA, multiple legislative proposals were introduced to Congress to address the lack of transparency in corporate ownership. These proposals, including the 2008 Incorporation Transparency and Law Enforcement Assistance Act (ITLEA), aimed to require companies to disclose information about their beneficial owners to government agencies. However, ITLEA and the similar bills that followed were not passed into law as some argued that regulation of business entity formation within the US should remain a state matter. 

To help close the gap in US AML legislation that remained, FinCEN introduced the Customer Due Diligence (CDD) Final Rule in 2016 as an amendment to the Bank Secrecy Act. This set out an extended range of CDD obligations for certain financial institutions (FIs), including a new requirement of establishing ultimate beneficial ownership. 

However, since the CDD Final Rule did not require the establishment of a centralized corporate registry, the US Congress began holding more hearings to address the persisting corporate transparency issue. Combined, these hearings helped provide the necessary momentum for the CTA’s passage. 

What are the objectives of the CTA?

The CTA aims to enhance AML efforts by improving transparency and accountability in corporate ownership structures. Its primary objectives include:

• Beneficial ownership disclosure: Require reporting companies to report information about their beneficial owners to FinCEN.
• Prevent illicit activities: Combat money laundering, terrorist financing, tax evasion, and other financial crimes by providing law enforcement with access to BOI.
• Enhanced data collection: Improve the accessibility and accuracy of BOI to facilitate investigations and enforcement efforts.
• Streamlined compliance: Simplify the process for firms to comply with their reporting requirements while maintaining data security and privacy.
• National security: Enhance national security by identifying and tracking entities with opaque ownership structures that may pose a risk. 

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Who needs to comply with the Corporate Transparency Act?

Reporting companies must comply with the CTA, which, according to the AMLA, refers to any corporation, limited liability company (LLC), or other similar entity that is:

1. Created by filing a document with the secretary of state or similar office in a state or Indian tribe under their respective laws, or;
2. Formed under the law of a foreign country and registered to do business in the US by filing a document with the secretary of state or similar office under the laws of a state or Indian tribe.  

This includes C-corporations, S-corporations, domestic and foreign LLCs, general partnerships, limited partnerships, and business trusts. 

Who is exempt from complying with the CTA?

The CTA outlines 23 exemptions and exceptions to some of these legal entities, including:

• Securities reporting issuers.
• Governmental authorities.
• Banks.
• Credit unions.
• Depository institution holding companies.
• Money services businesses.
• Brokers or dealers in securities.
• Securities exchanges or clearing agencies.
• Other Exchange Act registered entities.
• Investment companies or investment advisers.
• Venture capital fund advisers.
• Insurance companies.
• State-licensed insurance producers.
• Commodity Exchange Act registered entities.
• Accounting firms.
• Public utilities.
• Financial market utilities.
• Pooled investment vehicles.
• Tax-exempt entities.
• Entities assisting tax-exempt entities.
• Large operating companies.
• Subsidiaries of certain exempt entities.
• Inactive entities.
  

What are the benefits and challenges of the Corporate Transparency Act?

Beyond being a moral obligation, there are compelling business reasons to prioritize transparency, particularly with regard to governance and anti-corruption measures. When it comes to the CTA, firms and authorities may experience the following benefits:

• Ease of access to information: Creating a national beneficial ownership database will make it easier for authorities to access and cross-reference corporate ownership information and enhance accountability among US companies.
• Reduced risk of fraudulent activity: The CTA plays an important role in the Biden administration’s strategies for countering corruption and combating terrorist and other illicit financing by making it harder for individuals to use shell companies and anonymous corporations to hide their income and assets. 
• Aiding law enforcement: The CTA helps national security agencies assess potential threats and vulnerabilities by identifying who controls and benefits from corporations.
• Investor confidence: In light of enhanced BOI disclosures, improved due diligence, and additional legal protections – such as penalties for non-compliance – the CTA is expected to boost investor confidence by reducing risks associated with hidden ownership and illicit financial activities. 

However, the CTA can create challenges for some firms, particularly smaller businesses that may not have an existing infrastructure in place to meet the new reporting requirements. Specific challenges may include:

• Data collection: Gathering accurate and up-to-date information about beneficial owners can be challenging, especially when dealing with complex corporate structures or multinational companies.
• Data privacy: Balancing the need for transparency with privacy concerns of beneficial owners can be delicate. Some entities may resist disclosing their ownership stakes for personal or security reasons. 
• Administrative requirements: Compliance with the CTA can impose an administrative burden on firms, particularly smaller businesses or start-ups without dedicated compliance departments.

To address these challenges, firms should seek legal counsel, invest in Know Your Business (KYB) compliance tools and training, and stay informed about updates to the CTA and related regulations. For challenges specific to the US real estate industry, compliance professionals can consult our Guide to AML/CFT Reforms, which discusses the implications of the CTA on the sector in detail. 

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How can companies comply with the Corporate Transparency Act?

While the new reporting requirements will come into effect in early 2024, new and existing entities will have different reporting deadlines. Companies that are already established had to submit their initial report to FinCEN by January 1, 2025, whereas companies formed after January 1, 2024, have only 30 days to file. 

For those who fail to comply with the reporting requirements or knowingly provide false or fraudulent information, the regulation establishes criminal and civil penalties of $500 per day (up to $10,000) and imprisonment for up to two years.

For additional guidance on how to comply with the CTA, smaller entities can also review FinCEN’s BOI compliance guide.

Maintaining corporate transparency through comprehensive due diligence

In addition to reporting BOI information to FinCEN, firms can help establish their corporate customers’ ownership structure by deploying suitable know your customer (KYC) measures as part of their anti-money laundering and combatting the financing of terrorism (AML/CFT) solutions. In practice, this should include:

• Customer due diligence (CDD): Firms should collect identifying information about their customers, including the names and addresses of company directors and company incorporation details.
• Transaction monitoring: By monitoring transactions, firms can identify shell companies and be vigilant for unusual transaction patterns or transactions involving high-risk countries.
• Adverse media: News stories may indicate that customers are involved in UBO-related money laundering offenses before official sources reveal the same information. Firms should implement negative news screening on an ongoing basis for adverse news stories that involve their customers.
• Sanctions screening: Customers who are subject to international sanctions may use shell companies to access financial services. Therefore, firms should screen high-risk customers against the relevant sanctions lists.
• PEP screening: Politically exposed persons (PEP), such as government officials or politicians, pose an elevated AML risk and may attempt to use shell companies to conceal their identities. Firms should screen their customers to establish their PEP status.
• Corporate screening: Firms must confirm the legitimacy of a company before entering into a business relationship with them. Once the business has been onboarded, ongoing KYB verification checks are performed periodically to ensure any changes in the entity’s risk profile are captured. 

The post What is the Corporate Transparency Act (CTA)? appeared first on ComplyAdvantage.

What are KYB and KYC?

KYC and KYB form part of a firm’s customer due diligence (CDD) process. Depending on the level of risk identified during KYC and KYB checks, firms will perform varying levels of ongoing monitoring throughout the business relationship.   

What is KYB?

KYB is a verification process used when one business engages with another – as opposed to a business engaging with an individual. It plays a similar role to KYC in helping establish and verify customer identities. It can also accurately assess the level of risk involved in starting a business relationship with the entity in question. KYB helps businesses investigate and determine whether an entity is a genuine organization or whether the business owners have set it up as a front for illicit activity of some kind – i.e., a shell company. 

Once the legitimacy of a business has been verified, the business’ ownership structure must also be established, including the company’s directors and ultimate beneficial owner (UBO). Identifying these individuals can help shed light on whether the business is legitimate, whether there are links to illegal activity, and whether there are anonymous parties in play. 

At the same time, KYB can help businesses assess risk by determining whether the entity under scrutiny or its employees have been sanctioned, received criminal convictions, or attracted negative news coverage attached to previous activities.

What is KYC?

KYC is a procedure for verifying a customer’s identity and monitoring their financial behavior. It is carried out when a business onboards a new customer and continues throughout the business relationship on an ongoing basis. A number of territories require KYC to be carried out by law to help prevent money laundering and the financing of terrorism. 

Regulated industries include financial services, such as banks or investment platforms, and other services, such as insurance or gambling. These industries are considered more susceptible to identity fraud than others, so it becomes very important to check that a customer is who they say they are. KYC also plays a role in helping businesses assess the risk of lending to a customer by understanding their background and history. 

What is the difference between KYB vs KYC?

The difference between KYC and KYB is that the former focuses on conducting business with individuals, whereas KYB relates to building trusted relationships with corporate customers. While KYC procedures gather information about an individual, a KYB check involves collecting and screening information about a company. 

KYB and KYC regulations

KYC and KYB requirements vary by jurisdiction, but there is a framework of 40 recommendations for KYC set out by the Financial Action Task Force (FATF) that member states must adhere to. These recommendations provide overarching standards for FATF member countries in their shared global effort to prevent and combat financial crime. Jurisdictions can use these recommendations to establish and maintain a robust KYC system for their economies.

United States KYB/KYC regulations

KYC laws first came into existence with the 2001 US Patriot Act, set up to combat terrorist activity in the United States and other countries. The act strengthened existing requirements around CDD and anti-money laundering (AML), and also introduced special measures such as additional record keeping and UBO identification. In 2016, American KYB laws were strengthened with the addition of the CDD Final Rule, or Customer Due Diligence Requirements for Financial Institutions.  

EU KYB/KYC regulations

In the EU, member states set their own KYC and AML rules, although the EU itself has set up some directives and regulations to govern what these should entail. One important piece of legislation in this region is the General Data Protection Regulation (GDPR), which requires high standards of data privacy and record keeping. In 2021, the EU proposed a unified AML/CFT rulebook and the creation of a new EU Anti-Money Laundering Authority (AMLA). This is due to come into force by 2024. 

UK KYB/KYC regulations

The UK’s approach to KYC and KYB is similar to the EU, including GDPR. In 2020, its AML regime was updated to move from the EU directive to FATF standards. However, the UK’s exit from the EU in 2021 created turbulence and a spike in scam activity. Among other changes, the EU’s identity verification system is no longer accessible to British and Northern Irish institutions. 

What are the key requirements for KYB and KYC compliance?

Although regulations and procedures vary worldwide, the processes for KYC vs KYB can be generalized based on the requirements common to all or most jurisdictions. 

KYB verification process

• Collect basic identifying information, such as company address, registration or incorporation documents, and the identities of key people in the business.
• Verify the legitimacy of the collected information.
• Identify the UBO.
• Screen against sanctions lists and available government registries in relation to the company and individuals within it.
• Monitor transactions on an ongoing basis to identify suspicious patterns of activity, or other red flags.
• Screen for politically exposed person (PEP) status.
• Monitor for adverse media coverage and social media/online sources.

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KYC verification process

• Collect basic information such as name, date of birth, address, and nationality, along with any former names or aliases used.
• Verify identity using personal documents.
• Check against government registers, global watch lists, and sanction lists.
• Screen for PEP status.
• Gather information on background and financial history for risk assessment, in the case of risk-based KYC.

The challenges and benefits of KYB and KYC

KYC and KYB offer obvious benefits in protecting businesses and mitigating threats to national security. They also provide crucial decision-making information for businesses when assessing risk before lending to someone. 

Additional benefits that highlight the importance of KYB and KYC screening include:

• Mitigating the risk of onboarding illegal or illegitimate companies.
• Identifying ownership structures.
• Ensuring sanctioned entities are not onboarded or are swiftyly offboarded/subject to an asset freeze if a customer is designated.
• Increasing efficiency by leveraging an automated screening solution.
• Creating a holistic overview of the customer.
  

However, traditional KYC and KYB processes that use manual procedures can be time-consuming and absorb a lot of resources. Such practices can introduce delays and complications to new business relationships, requiring both parties to wait for verification or gather documentation which must be securely moved between one physical place and another. 

Advanced KYB and KYC solutions 

To effectively tackle the challenge of KYC/KYB compliance while maintaining a positive customer experience, firms must adopt advanced technological solutions. In recent years, KYC and KYB procedures have been transformed by the introduction of online and digital solutions including virtual verification and automated KYC and KYB checks. Electronic KYC, also known as eKYC, means that KYC checks can be carried out without either party having to physically meet or send documentation. 

The advantages of automated solutions like these include:

• Enhanced efficiency: By implementing automated KYC/KYB solutions, businesses can manage a higher volume of KYC/KYB checks in a shorter time, expediting the onboarding process and reducing the time taken for alert remediation.
• Improved accuracy: Automated KYC/KYB verification checks significantly minimize the risk of human error. Through the use of automated algorithms and real-time data, businesses can ensure consistent and reliable results, leading to more precise decision-making and reducing the likelihood of data entry mistakes or oversights in the remediation process.
• Scalability: Manual KYC/KYB screening processes can be time-consuming and overwhelming, especially during periods of high demand or when handling numerous customer applications. Automated solutions offer scalability, allowing businesses to handle increased workloads without compromising efficiency or accuracy, thus maintaining a smooth and consistent screening process.
• Risk mitigation: Automated KYC/KYB functionalities, such as dynamic risk scoring, are crucial for firms focused on mitigating risks related to onboarding or conducting enhanced due diligence (EDD). These features assist in identifying potential risks and preventing unauthorized access to financial systems.

The post KYB vs KYC: What is the difference? appeared first on ComplyAdvantage.

When onboarding business customers, financial institutions (FIs) are under pressure to implement a seamless Know Your Business (KYB) screening process that is accessible and doesn’t leave customers waiting. Speed and efficiency are top of mind, but so is the need to remain compliant with anti-money laundering and counter-terrorism financing (AML/CTF) regulations that require firms to establish who their customers are and understand what kind of financial activity they are involved in. 

This article explores everything firms need to know about KYB automation, how it works, its benefits, and how to combat potential challenges.

What is KYB automation?

KYB automation refers to the process of using advanced technology to efficiently verify and assess the legitimacy and risk profile of business entities and their key stakeholders. It involves automating data gathering, verification, and risk assessment tasks to ensure compliance with regulatory requirements and to make well-informed decisions when onboarding new corporate clients. 

The key components of KYB automation typically include:

• Data gathering is the collection of information that is relevant to businesses and their key stakeholders from diverse sources. This may include public databases, financial records, and third-party vendors.
• Data verification occurs after the information has been gathered. At this point, its relevance and legitimacy must be verified. Sophisticated KYB solutions can often automatically cross-reference the collected data to make sure the information is accurate and reliable. This helps FIs understand better who they’re doing business with. 
• Risk scoring allows firms to evaluate and understand just how trustworthy and stable their business relationship are. These scores are generated in light of the FI’s risk appetite and often in real-time. What are the benefits of automated KYB checks?

What are the benefits of automated KYB checks?

By implementing KYB automation, businesses can optimize their operations and enhance customer experiences, leading them to greater productivity and competitiveness in the market. It is a vital tool for savvy businesses looking to leverage technology to achieve growth and success while mitigating risks and maintaining regulatory compliance.

Additional benefits of automated KYB checks include:

• Time-efficient onboarding.
• Enhanced accuracy and reliability.
• Compliance with regulatory standards, such as those outlined in the Customer Due Diligence (CDD) Final Rule by the Financial Crimes Enforcement Network (FinCEN). 
• Resource optimization.

The main challenges of the KYB automation process

While the KYB automation process brings undeniable advantages, it can also present challenges if the solution does not offer the right amount of flexibility or does not have access to a wide range of up-to-date information repositories. 

Without these features, some common challenges can occur, including:

• Ensuring the automated system can efficiently navigate different data points and consolidate fragmented information to form a clear picture of a newly established business. 
• The rise of shell companies and other fraudulent entities poses a significant challenge in the KYB automation process. To mitigate the risk of onboarding such businesses, firms should ensure their automated KYB solution can check the company’s tax identification number (TIN) against the IRS register. 
• An over-reliance on outdated or unconsolidated data profiles can lead to incorrect decisions, such as wrongly offboarding or rejecting genuine businesses. Ensuring data accuracy and keeping data profiles up to date is crucial to avoid such errors.

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The importance of AI and machine learning in KYB verification

When automating the KYB process, artificial intelligence (AI) and machine learning are crucial in order to do it effectively and efficiently. These advanced technologies can also provide firms with the added benefits of speed, accuracy, and adaptability. But how do these technologies work to bring about these benefits?

First and foremost, AI-powered data extraction algorithms collect and analyze vast amounts of unstructured data from multiple sources, such as company registries and financial records. Following this step, ML models can be built to ingest and categorize the information. When doing this, the models can be programmed to identify details such as business names, addresses, and beneficial ownership structures. These models can also learn from historical patterns and map out behaviors typical of high-risk entities. 

Secondly, over time, AI and ML can help continuously improve automated KYB processes by learning from the outcomes of previous verifications. This can then help inform firms on where they need to fine-tune their algorithms to become more accurate and efficient.

Automated KYB solutions 

By streamlining workflows, centralizing risk data, and introducing a customer-friendly onboarding portal, our combined KYB solution with Detected reduces manual effort, accelerates onboarding, and minimizes operational costs. As a result, businesses can now benefit from dynamic risk scoring, continuous monitoring, and fewer false positives – ultimately driving revenue growth while enhancing compliance and customer experience.

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A reliable KYB vendor can offer firms the expertise, tools, and advanced technologies to navigate the complex landscape of identity verification, due diligence, and risk management. But with a myriad of options available in the market, how should firms approach choosing the best KYB solution provider for their needs? 

5 tips on how to choose the best KYB provider

1. Make sure the solution meets regulatory requirements

Since the introduction of KYB regulations in the Financial Crimes Enforcement Network’s (FinCEN) CDD Final Rule), US “covered financial institutions” must establish who controls the companies they are doing business with and verify they are not engaged in criminal activities. Similarly, the EU’s 5th Anti Money Laundering Directive (5AMLD) emphasized KYB processes for obligated entities, with the subsequent directive (known as 6AMLD) increasing the penalties for noncompliance. 

As a result, firms’ top priority should be ensure the solution they choose meets their regulatory requirements. Elements typically found in an AML compliant KYB solution include:

• Robust customer due diligence (CDD) processes to collect and verify information about business entities. This includes obtaining accurate and up-to-date data on the business’ legal structure and beneficial owners. 
• Sanctions and politically exposed person (PEP) screening to check if the business or its associated individuals are on any sanctions lists or PEP databases. Real-time risk databases should be prioritized to ensure any list changes are captured as soon as possible. For example, with ComplyAdvanatge, firms can confidently mitigate risk with the knowledge that watchlists, including the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) And Blocked Persons List, are updated every 15 minutes. 

2. Check if and how the KYB software uses AI

Efficient and accurate data analysis is vital for effective anti-money laundering and combatting the financing of terrorism (AML/CFT). Without advanced technology like artificial intelligence (AI) and machine learning (ML), firms risk creating frustrations among their analyst teams and wasting time and money that could be deployed elsewhere.  

For KYB screening, firms can benefit from AI and ML through features like dynamic risk scoring. By configuring the solution to reflect a specific risk matrix, analysts can receive updates throughout each verification check as the risk of the business changes. Functionalities like this allow analysts to move away from risk assessment models that rely on static rules and predefined thresholds. Instead, dynamic risk scoring allows for real-time evaluation and adapts to changing business conditions and emerging risks. 

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3. Assess the KYB solution’s data coverage

To ensure the suitability of a KYB provider’s data coverage , senior decision makers should ascertain what registries the solution can auto-validate company data against. This may include jurisdictional coverage as well as the number and quality of registries onboarding teams have access to. 

To mitigate the risk of onboarding fraudulent businesses, firms operating in the US should also check if the KYB solution allows analysts to cross-reference a potential customer’s taxpayer identification number (TIN) and employer identification number (EIN) against the Internal Revenue Service (IRS) register. 

4. Review the integration capabilities

Ensuring compliance functions are well integrated into a firm’s wider financial crime architecture is crucial to breaking down system siloes and ensuring data can be consolidated to create a holistic view of risk. This includes connecting with a firm’s internal risk management and transaction monitoring systems, as well as reporting mechanisms to ensure a cohesive and effective AML program. Application programming interface (API)-driven solutions are the best way to experience two-way synchronization between an internal system and a vendor’s solution. 

With ComplyAdvantage, firms can get up and running with their KYB solution in one API call. Read what our customer 40Seas said about how easy it was to integrate our KYB solution into their existing platform:

“As a digital trade finance platform, automated onboarding and efficient KYB is critical for 40Seas. ComplyAdvantage’s KYB solution was really easy to get up and running with. With the system, we’re able to verify our customers in seconds, improving the customer experience and ensuring we can mitigate risk effectively”

– Igor Zaks, Co-founder and Chief Risk Officer, 40Seas

5. Ensure the vendor has strong industry knowledge and experience with relevant firms

When firms partner with a KYB provider that has relevant knowledge to their specific industry, they can be confident that unique compliance challenges and risk factors will be understood. This expertise ensures the provided solution aligns with industry regulations and helps firms alleviate common industry pain points (such as low conversion rates due to lengthy onboarding processes). 

Additionally, when a vendor has experience working with similar firms, greater out-of-the-box thinking is made possible when solving challenges. This also empowers implementation teams to be proactive, offering creative solutions that can help firms get to their intended solution more quickly or efficiently than they had anticipated.

Partnering with ComplyAdvantage for KYB

By streamlining workflows, centralizing risk data, and introducing a customer-friendly onboarding portal, our combined KYB solution with Detected reduces manual effort, accelerates onboarding, and minimizes operational costs. As a result, businesses can now benefit from dynamic risk scoring, continuous monitoring, and fewer false positives – ultimately driving revenue growth while enhancing compliance and customer experience.

The post How to choose the best KYB solution provider (5 useful tips) appeared first on ComplyAdvantage.

5 best practices for implementing an effective KYB process

From start-up fintechs implementing a KYB process for the first time to legacy financial institutions looking to enhance their company screening measures, these five best practices can be used by firms to help inform an effective KYB risk management framework.

1. Create KYB policies and procedures

Company policies and procedures should be recorded to help guide efficient financial management, as well as risk mitigation and the alignment of internal operations. Periodic reviews of these documents are very important to make sure they remain consistent with the company’s risk appetite and the environment they are operating in. To ensure analysts are aware of how specific corporate screening tasks should be approached, firms may choose to document the following KYB policies and procedures:

• The name of the senior manager that is responsible for the development and implementation of the policy and relevant procedures
• How often the KYB policies and procedures will be reviewed.
• What happens if a business or related entity is deemed high-risk (e.g., rejecting the company at onboarding, ceasing trading, on-site visits, etc.).   
• How to report suspicious activity to a designated authority
• If a KYB database, software program, or other service is utilized in the firm’s KYB process. 
• Any monitoring controls that are in place.

2. Provide training to employees

Compliance staff should receive appropriate training from the company’s Money Laundering Reporting Officer (MLRO)  – often representing a firm’s first line of defense – on how to effectively perform KYB checks per the firm’s policies and procedures. Employee training is a key component of any anti-money laundering and combatting the financing of terrorism (AML/CFT) program, as it ensures staff have the knowledge and understanding required to recognize financial red flag indicators and emerging industry trends. At a minimum, KYB training should cover:

• Information on AML/CFT and KYB regulatory compliance requirements.
• Internal policies to prevent financial crime.
• Recognizing illegitimate businesses and anomalous activity in customer-provided documents. 
• Assessing beneficial ownership structures. 
• Red flags relating to the money laundering and fraud typologies that pose a medium to high threat, according to the firm’s latest risk assessment.
• How to escalate suspicious activity.

3. Utilize advanced technologies

Advanced technologies, such as solutions utilizing artificial intelligence (AI), machine learning, and automation, can significantly enhance the efficiency and speed of KYB processes. As well as automating repetitive tasks and performing accurate data analysis at scale, advanced functionalities like dynamic risk scoring can help firms accelerate the decision-making on whether to onboard entities perceived as high risk. 

To avoid a complex and lengthy implementation process, firms can opt for an API-led KYB solution. The ComplyAdvantage API journey has 3 steps:

• Search for a company (optional). This can be done by inputting a company’s name or its Taxpayer Identification Number (TIN). 
• Create a case. If an analyst already knows the officers and/or controlling entities (beneficial owners and shareholders), these names can be added to the request, and they will be made part of the case and screened. 
• Receive a webhook with the results. The outcome of the screening task is a webhook that contains all case information, including:
  • The company being screened.
  • Officers and controlling entities of the company.
  • Risks evaluated against the company and its entities.

KYB is broken: We’re partnering with Detected to fix it

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4. Implement a risk-based approach

Since corporate environments fluctuate constantly, risks associated with business relationships can evolve over time. To keep up and adapt to these changes, firms should adopt a risk-based KYB process, which looks like compliance teams focusing on entities that pose a higher risk. This is particularly important as not ever corporate customer will carry the same level of risk. By taking a risk-based approach, firms are thus more likely to be able to identify and mitigate potential risks proactively.

Adopting this approach to KYB also demonstrates a commitment to robust risk management practices and regulatory compliance. From a regulator’s perspective, this can enhance a firm’s reputation and credibility. Building trust through strong risk management practices can give organizations a competitive advantage, attracting reputable business partners that value strong risk mitigation measures.

5. Perform ongoing monitoring

After a corporate client has gone through each stage of the KYB screening process, firms must be sure to subject them to ongoing monitoring measures. This typically involves regularly monitoring and evaluating the risks associated with the business and its controlling entities to ensure they continue to meet the organization’s risk appetite and compliance requirements. In particular, automated systems should be prioritized as they will often screen entities against sanctions lists, watchlists, and adverse media in real-time – creating the most accurate picture of a customer at any given time as a result.  

KYB by ComplyAdvantage x Detected   

By streamlining workflows, centralizing risk data, and introducing a customer-friendly onboarding portal, our combined KYB solution with Detected reduces manual effort, accelerates onboarding, and minimizes operational costs. As a result, businesses can now benefit from dynamic risk scoring, continuous monitoring, and fewer false positives – ultimately driving revenue growth while enhancing compliance and customer experience.

The post The KYB process: 5 best practices for implementation appeared first on ComplyAdvantage.

Since more FIs are dealing with a larger number of corporate customers – from startups to large-scale organizations – the need to verify their legitimacy and evaluate potential risks has become all the more essential. Globalized markets and increasingly strict regulations compound to amplify corporate customers’ need for comprehensive due diligence. By implementing the right KYB verification tool, firms can strengthen their risk management capabilities, comply with regulatory obligations, and maintain good levels of trust in the integrity of their business relationships. 

What is KYB verification?

KYB verification refers to the process firms undertake to confirm the legitimacy of a company before entering into a business relationship with them. Once the business has been onboarded, ongoing KYB verification checks are performed periodically to ensure any changes in the entity’s risk profile are captured. KYB verification checks essentially help firms know who they are doing business with and can help inform the appropriate level of vendor due diligence that should be applied to the customer’s account.

Why is KYB verification important?

While know your customer (KYC) regulations have been a standard anti-money laundering (AML) obligation in the US since the passage of the US Patriot Act in 2001, the regulation did not initially require firms to scrutinize the identity of the businesses they had relationships with. In 2016, the Financial Crimes Enforcement Network (FinCEN) addressed the blindspot by establishing KYB rules in its Customer Due Diligence Requirements for Financial Institutions (the CDD Final Rule). The Final Rule made KYB verification an obligation for financial institutions entering into B2B partnerships or any other business relationship. 

Being a critical component of an effective risk management framework, KYB solutions not only protect FIs and their customers, they also help protect the integrity of the financial system. Additional benefits that highlight the importance of KYB screening include:

• Mitigating the risk of onboarding illegal or illegitimate companies.
• Identifying ownership structures.
• Increasing efficiency, when using API-driven tools that utilize dynamic risk scoring.
• Creating a holistic overview of the customer.

6 steps for an effective KYB verification check

By streamlining workflows, centralizing risk data, and introducing a customer-friendly onboarding portal, our combined KYB solution with Detected reduces manual effort, accelerates onboarding, and minimizes operational costs. As a result, businesses can now benefit from dynamic risk scoring, continuous monitoring, and fewer false positives – ultimately driving revenue growth while enhancing compliance and customer experience. 

With our combined solution, firms can perform an effective KYB verification check in six steps.

1. Create and validate a profile

Creating a customer profile is simple and efficient. Simply log in to the Compliance Operations Platform and enter minimal details, such as the company name, city, and country. Leveraging Detected’s Global Risk, Fraud & Compliance Network, the platform then validates the data using trusted sources and presents a list of potential matches. After selecting the correct entity, the customer profile is automatically saved in the platform for further action.

2. Collect and verify customer information

At this point, customers can log in to the white-labeled front-end user interface, complete email authentication, upload documents, complete questionnaires, declare UBOs or related entities, and much more. This flow is configurable based on location, product requirements, or any other factors that might require custom sign-up journeys. Once the requested actions are finalized, the profile is updated within the Compliance Operations Platform.

3. Assess the automated risk score

The platform then performs an automated profile analysis, generating a risk score defined by your company’s custom risk scoring framework. This score is based on key factors such as checks for politically exposed persons (PEPs), sanctions, adverse media, company age, credit ratings, and source of funds – all of which can be investigated in the left-hand view.

4. Conduct continuous screenings

The platform’s real-time monitoring continuously updates the risk score as new information becomes available through screenings, global sanctions, watchlists, and adverse media databases. This covers both the entity and individuals, such as Directors and ultimate beneficial owners (UBOs), associated with the business.

5. Request more information

If additional information is needed from the customer, your compliance team can configure tailored requests via the Compliance Operations Platform. These requests automatically prompt customers to log in and provide specific details, such as questionnaires, source of funds (SoF) documentation, or IDVs. The ‘Portal Progress’ section offers a clear overview of the onboarding status and next steps.

6. Implement a tailored review process

Your team can also leverage the checklist functionality, which is fully customizable to align with your internal processes and regulatory requirements. The checklist allows teams to systematically work through necessary actions, ensuring all requirements are reviewed.

Teams can assign tasks to specific users or groups, add comments, and update statuses such as Needs Review, Passed, or Failed. By tailoring the checklist to their needs, compliance teams can streamline workflows, maintain accountability, and ensure efficient progress tracking throughout the review process. 

Once checklists and reviews are complete, you can decide to onboard or reject the entity based on all information gathered from data sources and supplemented by the customer.

The Importance of automated KYB verification checks

To meet the challenge of AML/KYB compliance without negatively affecting the customer experience, technological solutions need to be deployed. Practically, this means automating the collection and analysis of vast amounts of data from a range of sources while building enhanced speed and efficiency into verification measures to reduce administrative friction. 

• Efficiency: Automated KYB solutions allow firms to process more KYB checks in a shorter time, helping them onboard customers faster and reducing alert remediation time.
• Accuracy: By using automated processes, firms can minimize the risk of human error and validate data with a high level of accuracy. This helps reduce the chance of data entry mistakes or oversights. 
• Scalability: Manual KYB screening processes can become overwhelming and time-consuming, especially when dealing with many customer applications or during periods of high demand. Automated solutions are scalable and can handle increased columns without compromising efficiency or accuracy. 
• Compliance: When partnering with a KYB vendor, firms should ensure their automated tool complies with relevant regulations and requirements. The solution should integrate with compliance databases, sanctions lists, and regulatory frameworks, ensuring businesses are consistently screening against up-to-date and relevant information. 
• Risk mitigation: Automated KYB functionalities such as dynamic risk scoring are key for firms conscious of implementing a risk-based approach when making decisions about onboarding or conducting EDD.   

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