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Don't forget about KYB requirements tightening

Published on
March 28, 2024
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KYB compliance checks seek to identify and validate businesses, companies, organisations and monitor their financial transactions and eventual converts regarding status, structure, and ownership over time. The latter, verifying the identity of the ultimate beneficial owner (UBO), is becoming increasingly crucial in today's regulatory landscape of tightening AML requirements. In 2022, the repercussions of non-compliance have become even more severe.

The KYB requirements and the importance to meet them increases

As a foundational component of AML regulations, Know Your Business (KYB) refers to the controls an organisation needs to implement to ensure that its clients are not engaged in money laundering, terrorist financing or other criminal activity. KYB regulations have been developed to deal with cases where the customer is a company or corporate entity. It is essentially a due diligence process like that of KYC (Know Your Customer), but with the emphasis on ensuring the validity of a company rather than verifying an individual’s identity. However, KYB also entails identifying individuals since companies are created and owned by humans. Most B2B (Business-to-Business) companies need to carry out said due diligence to identify and validate the entities they work with. In the financial sector, the KYB procedures and the due diligence processes constitute a mandatory requirement of legal compliance, and they are often even more thorough. The KYB requirements were designed to facilitate organisations to take a risk-based approach to new and existing company clients and avoid criminals that disguise their fraudulent activities using shell companies. Organisations doing business with such treacherous entities are at risk of consequences such as hefty fines, harsh penalties, and a tainted reputation that can be hugely damaging and very hard to recover from. Whether the participation was inadvertent, due to ignorance or knowingly is irrelevant in the eyes of the law and to the general perception.

It is vital for organisations covered by the AML regulations to implement effective due diligence processes for vetting existing and potential clients according to KYB requirements. They need to collect information that can be used to accurately identify, verify, and validate a company client, such as the company's name, address and status, registration number and documents, licensing documentation, and identities of directors and owners. Determining which entities or persons have an ownership stake and mapping the company ownership structure is crucial. Many companies have multiple owners, either through direct ownership or another party. Someone who owns or controls more than 25 % of the shares or voting rights is defined as the legal entity's ultimate beneficial owner (UBO). For an organisation to identify UBOs, there are challenges to be bested. Like understanding differing legal requirements and methods of defining and recording ownership, unravelling complex ownership structures, finding sufficient publicly available information on UBOs, and collecting fragmented information on business ownership stored in different forms and multiple locations.

KYB requirements with a greater focus on UBOs

Not only is it a regulatory requirement, but it is also in the best interest of B2B companies and other organisations affected to focus more on identifying UBOs henceforth. According to the European Union’s Sixth Anti Money Laundering Directive (6 AMLD), which places substantial emphasis on the importance of the KYB processes, regulated entities will be held liable for non-compliance with the UBO requirements to a greater extent than before. Meaning that even if an organisation by accident has done business with somebody who is laundering money, the officers involved could go to jail. The Financial Action Task Force (FATF) has stated that current rules are insufficient and are in the process of formulating more concrete recommendations for greater transparency around beneficial ownership. This usually means it's just a matter of time until FATF's guidance become legal requirements in various jurisdictions around the globe. The Pandora Papers, which revealed the shell accounts of over 100 world leaders, billionaires, and celebrities, has garnered significant media attention. Its comprehensive disclosure of financial secrecy reminds regulators, authorities and B2B companies collectively of the universal ethical imperative to prevent financial crimes and nurture a responsible organisation. Companies will need to display clearly that they're on the right side of that narrative and this requires genuinely knowing who they are doing business with.

To accomplish this and meet KYB requirements, organisations must obtain and verify certain information about the companies and third parties they are dealing with. They need to perform sanction checks on companies against the OFAC sanctions list, UN sanctions list, EU sanctions list and other expedient lists. UBOs should also undergo additional AML/KYC (Know Your Customer) checks and sanction screenings to ensure identification and complete customer due diligence. Companies exposed to political corruption present an increased level of AML risk. Therefore, organisations should screen companies to establish their politically exposed person (PEP) status. Ongoing monitoring and adverse media checks are helping organisations detect a company's involvement in negative news media stories that indicate criminal activity participation. The monitoring process includes the traditional screen and print media and online sources. Financial institutions must utilise transaction monitoring to detect and investigate uncommon regularities, volumes of transactions, or transactions with high-risk countries that often represent money laundering red flags. If an organisation performing due diligence on a company detect an increased AML risk anywhere, a higher degree of scrutiny and enhanced due diligence should be implemented.

The one-stop-shop of KYB compliance

ZignSec owns the capacity to render any financial institution or other regulated organisation fully equipped to meet KYB requirements and beyond. We offer automated KYB processes that reduce risk and increase compliance with AML directives. Organisations connected to ZignSec manage all their KYB checks and procedures for corporate and risk screening on our single platform via a single interface. Affiliated organisations can seamlessly integrate corporate reviews into their onboarding workflow and automate and accelerate onboarding at a previously unimaginable scale. ZignSec offers an AI-based verification system that expands the proficiency, efficiency and accuracy of the registration and onboarding process as well as the due diligence process and facilitates the monitoring procedures.

Our platform holds a comprehensive aggregate supply of global and local compliance solutions and serves as an orchestration layer for all the workflows, processes and features that affiliated organisations employ. As a worldwide compliance platform, ZignSec technology facilitates the challenges of different legal requirements and methods of untangling complex ownership structures, finding available information on UBOs, etc. Organisations can utilise ZignSec as their sole compliance provider and tailor compliance workflows and screening programs according to their business needs and regulatory requirements with a risk-based approach. We provide digitised KYB compliance utilising advanced software solutions and features for an AI-based Due Diligence process. ZignSec is a one-stop-shop with a complete aggregated supply of KYB and KYC solutions; we provide companies with peace of mind regarding fraud risk and compliance and free up valuable employee time, allowing them to focus more on the core business.

Contact us at sales@zignsec.com today to learn more or book a demo, and to ensure that you’re KYB process is up to best-practice standards.

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