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KYB onboarding is the verification of the company, which involves a detailed investigation to evaluate its legitimacy. Learn the importance of KYB in preventing fraud and risks.
In the business world, the red flags are threats to the partner company’s finances, which affects the bottom line and reputation. When a corporation onboards a company without verification, there is a risk that money launderers, fraudsters, criminals, and politically exposed persons (PEPs) are the entities behind the business. This leads to legal consequences such as sanctions, penalties, and other sentences. To avoid such risks, the corporation must rely on KYB onboarding to verify the legitimacy of the companies. The KYB know your business is the due diligence of the companies to understand its legal and financial status. In this two-minute read, let us explore how the verification process is significant in KYB onboarding businesses.
Know Your Business KYB Process
The KYB process is the investigation of the company’s data and documents to determine its legal status. The KYB process consists of the following steps:
Information Collection
The first step is collecting the data, including business name, physical address, contact number, tax reference number, and mailing address. Along with such data, the documents of the business in question are required, which include a bank statement, income statement, cash flow statement, lease agreement or mortgage agreement, and article of incorporation.
Documents Screening
All the collected documents undergo a screening process for verification purposes. The screening process involves cross-referencing all the documents against the registered databases of government and legal bodies. All the genuine documents get verified during this process, and fake invoices are detected.
UBO Verification
The ultimate beneficial owner of the company is an entity that holds company assets 25% or more than that. The beneficiaries, directors, and shareholders may be the ultimate beneficial owners of the company. In business verification, UBO identification is a necessary step that is done by collecting the UBO name, physical address, phone number, and documents relevant to a specific industry. All the documents relevant to UBO are also checked in cross-reference to evaluate their legitimacy.
Enhanced Due Diligence
Companies with a history of black money and being caught in criminal cases are categorized as having high-risk profiles. While KYB onboarding risky business profiles, corporations must rely on enhanced due diligence EDD. The EDD is an ongoing monitoring of the business partner for transparency in financial relations. If illegal funding occurs, the company gets a timely alert, which prevents financial crimes and fraud.
Advantages of KYB Verification
Knowing your business is not just a legal requirement in the business world, but it offers several advantages. The advantages of KYB onboarding are as follows:
Fraud Prevention
Without Knowing your business, the company is constantly vulnerable to fraud risks. The fraud case directly affects the bottom line of the company and the continuity of business. The companies may have criminals, fraudsters, and sanctioned persons who raise red flags in the verification process. In the KYB process, the red flags are detected to eliminate the potential risks. So, KYB is a reliable gateway for businesses to prevent fraud.
Compliance Obligations
In the business world, regulatory bodies design the obligations with which companies must comply. There are local and international laws and regulations to comply with; otherwise, businesses face penalties. While KYB onboarding the company, it is necessary to apply anti-money laundering AML checks over third parties. The company that passes AML checks reduces the money laundering risks. This ultimately results in a reduced risk of financial damages and legal consequences. The corporation gets confidence that it is hiring a legitimate company that complies with AML regulations.
Risk Assessment
The corporation faces risks associated with finance, operations, and reputation. The KYB onboarding process helps to identify the potential risk so corporations can mitigate it accordingly. The corporation filters out the companies by assessing the level of risk. The ongoing monitoring through KYB reduces the potential risks in the future.
Streamline KYB Onboarding
KYB onboarding is a crucial requirement when making bonds with other companies. The detailed inspection of the companies helps to build transparent financial relations. This helps to onboard legitimate companies, which are green flags for business financing and operations. The corporation has financial security with the prevention of potential risks. All the potential risks and threats are identified in a timely manner. In this way, the growth of the business is guaranteed, which builds a strong reputation in the market. Hence, healthy business-to-business B2B bonds are established for the long term.
