Know Your Business (KYB) checks: The ultimate guide

In today’s fast-paced and interconnected financial landscape, the risk of fraud looms large over businesses, threatening their integrity, financial stability, and reputation. For compliance professionals in regulated firms across the UK, the battle against fraud is an ongoing challenge that demands vigilance, expertise, and proactive measures.

What is Know Your Business (KYB) and why does it matter?

Know Your Business is the mandatory method by which banks and financial institutions get to know their customers’ businesses to ensure everything is above board in order to minimise the risk of financial crime, money laundering or other fraudulent activity taking place.

A robust KYB process enables firms to examine the entities that they wish to onboard and help them to determine whether they are genuine or are being used for unlawful purposes.

These checks may be as straightforward as confirming identities, key directors and subsidiaries but, in some cases, extend to identifying any adverse media coverage, the emergence of Politically Exposed Persons (PEPs) and flagging sanctions, such as those placed on Russia following the country’s invasion of Ukraine.

The overarching goal of KYB is to allow organisations to vet and verify the entity they wish to onboard and do business with – entities which can span international borders, tax systems and regulatory environments.

Know Your Business checks often involve compliance teams manually searching company records, thumbing through case files, chasing down documents from Ultimate Beneficial Owners (UBOs), and verifying endless pages of company accounts and financial statements, which can be ultimately stretch the department’s resources.

Why do KYB checks matter?

By obtaining and verifying essential information about the companies they are dealing with, organisations can ensure that every business being onboarded is legitimate and not ultimately funding criminal activity of any kind. Examining how organisations are set up and the individuals involved can help compliance teams to minimise the risk of their company inadvertently being party to fraud or any other criminal activity.

Importantly, knowing your business is not a one-stop shop. Rather, it is an ongoing process that must be revisited at defined intervals depending on the level of risk deemed applicable to each individual client once onboarded.

Many businesses are fluid in nature, and something can change in a matter of hours. From minor administrative changes such as a change of address to more significant updates such as new directors, adverse media or a Politically Exposed Person (PEP) becoming involved in a business, active monitoring must take place on an ongoing basis to ensure continued compliance with anti-money laundering regulations throughout the entirety of the relationship with every designated organisation.

Due to this ever-changing and increasingly complex regulatory landscape, remediation is a critical part of KYB. This process involves cleaning and updating the information gathered during the initial client onboarding phase and ensures that businesses remain compliant with all the latest regulation throughout the entire relationship.

A failure to spot suspicious activity, illicit beneficiaries, anomalous transactions, criminal stakeholders or terrorist financing can land a business in very hot water. Companies that don’t undertake sufficiently comprehensive KYB checks and monitoring not only open themselves up to fraud but hefty fines for failing to comply with legislation, and the subsequent reputational risk that fraud and fines can bring.

Ultimately, these KYB checks, along with strict anti-money laundering legislation and international regulation, exist to make financial interactions all around the globe safer and smoother, while combatting the rate of financial crime.

What is the difference between KYB and KYC?

Whilst inherently similar in practice, the components of KYB checks are vastly different to those involved in Know Your Customer (KYC) checks.

KYC checks tend to be basic checks carried out to verify individuals through key information which is personal to them such as address, date of birth and ID documents. Everyone opening a typical consumer bank account will undergo KYC checks to ensure their authenticity, allowing companies to assess how big a risk an individual may pose.

More thorough KYC checks also extend to checking credit reference agencies, whether an individual is a Politically Exposed Person (a PEP) or has any sanctions against them.

Conversely, KYB checks are inherently more complex, requiring deeper, richer information (that is not always available in the public domain) affiliated with the business in question from sources such as government registries, publicly available sources, databases or information provided by the business (company number, registered address etc).

KYB seeks to identify the veracity of businesses, delving into operational and structural set-up to verify that a company is authentic and not fraudulent.

What’s more, there is often a higher volume of checks associated with Know Your Business due to the nature of corporate structures, major shareholders, ultimate owners, directors, annual returns and financial statements, adverse media, and much more. Additionally, compliance teams may carry out standard KYC and due diligence checks of the directors, Ultimate Beneficial Owners (UBOs) or persons of significant control identified as part of KYB processes.

As a result, a KYB check on one business can incorporate dozens of individual checks of both the entity itself and its associated stakeholders.

KYC checks tend to occur at the beginning of a relationship between company and customer with ongoing checks periodically over time. This is so regulated businesses and financial institutions can stay abreast of any change in circumstance that may contribute to financial, reputational, or regulatory risk – and ensure compliance with regulation. Needless to say, the volume of checks carried out on individuals is often dramatically less in comparison to KYB checks.

Essential elements of KYB checks

It is important to note that the level of scrutiny applied as part of your KYB process will vary from others depending on your firm’s specific industry, operations, jurisdiction, and appetite for risk.

• Verification of corporate structure: Understanding a company’s structure is essential for KYB checks, allowing compliance teams to verify key details such as company registration, corporate hierarchy, and ownership relationships. Failing to verify the corporate structure of a business before onboarding them can lead to misunderstandings or assumptions around its ownership, control, and operations. Inaccurate and incomplete information about a company’s structure can hinder your risk assessment efforts, making it more difficult to implement suitable mitigation measures. This lack of clarity can increase the risk of firms onboarding individuals or entities that may be involved in illicit activities or who have undisclosed connections to sanctions individuals or entities, for example.
• Beneficial ownership identification: Identifying beneficial ownership is a critical step in conducting KYB checks, and compliance teams must identify the individuals who ultimately own or control a business entity. Not identifying beneficial owners can create opportunities for individuals to conceal their involvement in illicit activities such as money laundering, corruption, and other forms of financial crime. Without a clear understanding of who ultimately owns and controls a business entity, financial institutions may inadvertently facilitate activities involving illicit funds or individuals with nefarious intent. This lack of transparency not only exposes businesses to regulatory scrutiny and potential legal consequences, but also undermines broader efforts to combat financial crime. As such, conducting thorough beneficial ownership identification as part of KYB checks is essential to mitigate these risks and promote transparency in financial transactions.
• Taking a risk-based approach: Adopting a risk-based approach is fundamental when conducting KYB checks effectively. It’s important to take each KYB case on its own merits, assessing the level of risk posed by each business relationship and tailoring due diligence procedures accordingly. Without a comprehensive understanding of the specific risks posed by each business, firms are likely to conduct adequate assessments of the risks associated with certain business relationships and may find themselves overlooking higher-risk entities. Most regulators expect firms to tailor their due diligence based on the perceived level of risk, and failing to do so can lead to increased regulatory scrutiny, penalties, and reputational damage.
• PEPs and sanctions screening: Screening business entities against global sanctions lists and identifying any connections to Politically Exposed Persons (PEPs) is an important step in KYB checks. Thorough screening helps to prevent exposure to sanctioned entities or individuals with potential links to corruption or other illicit activities. PEPs pose an increased risk of corruption, bribery, and abuse of power due to their prominent public positions and, as a result, failing to identify a business’ connection to PEPs, or indeed sanctioned individuals, can increase the risk of financial crime, regulatory non-compliance, and reputational damage. Without PEP and sanctions screening, firms are more vulnerable to fraud and can facilitate fraudulent schemes, embezzlement, and bribery.
• Conduct Enhanced Due Diligence (EDD): In high-risk scenarios, compliance professionals may need to conduct EDD as part of KYB checks. This typically involves gathering additional information and scrutinising business relationships more rigorously to mitigate these heightened risks. Failing to conduct EDD when required exposes firms to increased risk of engaging with high-risk entities. What’s more, without conducting EDD, firms are reliant on standard due diligence procedures that are often insufficient in identifying and mitigating the risks associated with high-risk entities.
• Ongoing monitoring: KYB checks are not a one-time exercise, and it is important to monitor business relationships with robust processes in place to detect any changes to a business that may adversely impact their risk profile. Today, regulators expect firms to monitor their customers on an ongoing basis, and failing to comply with these requirements can lead to serious consequences. Without ongoing monitoring, firms may miss crucial signs indicating changes in ownership structure, financial activities, and associated risk, potentially allowing illicit activities to go undetected. What’s more, a lack of ongoing monitoring increases the likelihood of inadvertently doing business with entities that are involved in illicit activities, with sanctioned individuals, or in high-risk jurisdictions. Effective monitoring allows firms to adjust their risk mitigation measures in response to any changes in a business’ profile, ensuring a proactive approach that protects their businesses from undue risk.
• Record-keeping and reporting: Maintaining records of KYB checks and related documentation is essential for regulatory compliance. Compliance teams must ensure strict record-keeping, audit trails, and where required, must promptly report any suspicious activities to relevant authorities. Inadequate record-keeping practices hinder the ability of firms to provide auditors and regulators with the necessary documentation to demonstrate adherence to AML regulations, potentially resulting in reputational damage and loss of customer trust. Moreover, without the presence of reporting and analysis, financial institutions are likely to miss out on valuable insights into their compliance performance and exposure to financial crime risks. Effective record-keeping and reporting not only facilitate regulatory compliance but also enable institutions to identify areas for improvement in their KYB onboarding processes.

Best practices for streamlining KYB

Use tech for KYB processes

Leveraging technology is perhaps the most critical component of streamlining KYB onboarding processes. Automated verification platforms can drastically reduce the time and effort required for KYB checks by providing real-time access to global business databases and facilitating secure document verification. By integrating such digital solutions, firms can achieve more consistent and reliable KYB outcomes.

Taking a risk-based approach

Implementing a risk-based approach to KYB compliance is another best practice that can improve efficiency and make the onboarding process simpler for both compliance teams and corporate clients. This typically involves categorising clients based on their risk profiles and tailoring the depth of due diligence accordingly. High-risk clients warrant more extensive checks, while low-risk clients can be processed more swiftly with standard verification procedures. This prioritisation ensures that resources are allocated effectively, focusing on areas where the risk of non-compliance is greatest.

Bring data silos into one platform to minimise risk

Integrating data from multiple sources into a single platform is crucial for KYB compliance in lending firms because it ensures consistency and accuracy of information, providing a holistic view of customers and businesses. Taking a centralised approach with a single compliance solution streamlines processes, enhances risk management, and facilitates more effective decision-making. Armed with a 360-degree, real-time view of corporate clients and risk profiles, firms can meet stringent regulatory requirements by maintaining comprehensive and auditable records of due diligence activities, minimising operational risks and ensuring compliance with KYB regulations.

Building a culture of compliance

Fostering a culture of compliance within your organisation is essential for the success of KYB processes. This involves promoting awareness and understanding of KYB requirements across all levels of the firm, from senior management to front-line staff. Encouraging a proactive approach to compliance, where employees are vigilant and responsive to potential risks, can significantly enhance the effectiveness of KYB efforts. Leadership should demonstrate a strong commitment to compliance, providing the necessary resources and support to ensure that KYB processes are implemented effectively.

The impact of manual processes on KYB

Manual document collection and verification

Manually collecting and verifying documents such as company information, registration certificates, shareholder details, and proof of address is time consuming and prone to errors. This process often requires multiple touch points with the client, leading to delays and frustration.

Often, it involves sending emails back and forth, scanning documents, and physically verifying their authenticity. This process can be slow, as it relies on the client to provide the correct documents and on compliance teams to cross-check them against official records. Mistakes can occur at multiple points and sensitive documents might be lost, incorrectly filed, or misinterpreted.

What’s more, the manual nature of the process increases the likelihood of human errors, such as data entry mistakes or overlooked discrepancies, which can lead to compliance breaches. The time-consuming nature of this process also delays onboarding, which can frustrate clients and result in abandonment, especially in fast-moving sectors like financial services.

In sectors where swift, friction-free client onboarding is crucial, manual processes can lead to lost business opportunities and even fines for non-compliance. Automating this process not only improves efficiency but also ensures that businesses remain compliant with evolving regulations.

What to do instead: To eliminate the inefficiencies of manual document collection and verification, regulated businesses should look to a comprehensive KYB automation platform. These platforms allow businesses to automatically pull and verify essential documents directly from sources like Companies House, significantly reducing the time spent on manual checks.

When a client submits their documents, the platform can instantly verify their authenticity against official records, ensuring that only accurate and up-to-date information is used during the onboarding process. This not only accelerates the onboarding timeline but also mitigates the risk of errors, ensuring that compliance standards are consistently met.

Manual beneficial owner verification

Identifying and verifying ultimate beneficial owners (UBOs) is a complex task, particularly when dealing with layered or international corporate structures. Manually tracing ownership can lead to incomplete or inaccurate data, increasing the risk of onboarding entities linked to financial crime.

In manual processes, compliance teams may have to sift through multiple layers of ownership, often spread across different jurisdictions with varying levels of transparency. This can involve extensive research, contacting foreign registries, and relying on clients to provide accurate information. The manual approach is not only time-consuming but also prone to significant errors or omissions.

What to do instead: Automated UBO verification tools ensure that businesses maintain transparency and meet regulatory expectations without the manual burden.

These platforms are designed to automatically trace and map out intricate corporate ownership structures, even when entities are spread across different jurisdictions. By integrating with global registries and databases, these systems can identify UBOs quickly and accurately, flagging any potential risks associated with the ownership structure.

Manual PEPs and sanctions screening

Screening clients against global sanctions lists and identifying politically exposed persons (PEPs) are critical components of AML compliance. However, doing this manually is fraught with challenges. Global sanctions lists are constantly updated, with new entities and individuals added frequently.

Manually checking each client against these lists requires access to up-to-date databases, which can be difficult to maintain.

Moreover, identifying PEPs is particularly challenging because it involves not just the individual but also their family members and close associates, whose identities may not be immediately apparent. Manual screening processes are prone to errors, such as missing matches due to name variations or failing to update lists regularly. This leaves businesses exposed to significant compliance risks, including the possibility of unwittingly engaging with sanctioned entities, which can result in severe financial penalties and damage to the business’s reputation.

What to do instead: Automated screening tools that integrate with up-to-date global sanctions and PEPs databases can perform real-time checks during onboarding and on an ongoing basis. These tools also offer the ability to set up alerts for changes in status, ensuring that businesses remain compliant with the latest regulations. It ensures continuous compliance and reduces the risk of inadvertently engaging with sanctioned individuals or entities.

Manual risk assessment and scoring

Assessing the risk profile of a business is a critical step in the KYB process, but when done manually, it is highly subjective and inconsistent. Risk assessments typically involve evaluating factors such as the industry in which the business operates, its geographic location, risk profiles, and the backgrounds of its owners and directors.

Manually compiling and analysing this information requires significant time and expertise. Different compliance officers may apply different criteria or weightings to these factors, leading to inconsistent risk classifications.

What to do instead: Automated risk scoring ensures that high-risk clients are correctly identified and monitored, reducing the likelihood of non-compliance with the Financial Conduct Authority’s (FCA) regulations. These platforms can automatically evaluate a business’ risk profile by analysing vast amounts of data, from multiple sources in real-time. These systems provide consistent and objective risk scores, which can be dynamically adjusted as new information becomes available or your firm’s risk appetite changes.

Manual monitoring of client risk profiles

Once a business relationship is established, ongoing monitoring of client activity is essential to detect and respond to suspicious behaviour. However, when this monitoring is done manually, it becomes an overwhelming task, especially for businesses with large client bases.

Monitoring involves reviewing client information and data, changes in ownership, and other significant business activities to identify any patterns or anomalies that could indicate money laundering or other illicit activities. Manually analysing this data requires significant time and expertise, and it’s nearly impossible to keep up with the volume of information in real-time. As a result, suspicious activities might go unnoticed until it’s too late.

What to do instead: Automated ongoing monitoring systems use sophisticated algorithms to track client risk profiles around the clock. These systems can flag suspicious activities or changes in risk factors for further investigation, allowing compliance teams to focus their efforts where they are most needed. Without automation, businesses risk missing critical red flags, potentially leading to significant regulatory action.

The continued reliance on manual KYB processes in a world increasingly driven by technology is not only inefficient but also poses significant risks for regulated businesses in the UK.

7 benefits of automating your KYB processes

Traditional KYB methods, can be cumbersome and time-consuming, hampering customer experience and slowing business growth. Automated KYB software presents a huge opportunity for firms to transform the onboarding process, providing a number of significant benefits for both compliance teams and businesses alike.

• Allowing teams to reclaim valuable time: Traditional KYB methods often require manual verification of business information, which can take days or even weeks! Automated KYB can significantly speed up this process for new customers, enabling real-time verification, allowing new clients and businesses to be onboarded quickly and easily. Such speedy onboarding not only gets customers off to a great start in terms of satisfaction by reducing wait times but also enables your firm to start generating revenue more quickly. By automating routine tasks, compliance team members can redirect the focus towards more strategic activities such as improving overall compliance strategies and risk assessment processes. This, in turn, will boost team efficiency but allow team members to invest their time into higher value tasks that foster a proactive, nimble compliance function. What’s more, compliance leaders can rest assured that regulatory requirements are being met without compromising on efficiency or customer experience.
• Improved accuracy and reduced human error: When conducting KYB checks manually, your team is running the risk of missing something, overlooking a key piece of information that may adversely affect a customer’s risk profile. Human error is exactly that, human. But, in the world of AML compliance, one error can be costly, leading to compliance breaches, fines, and reputational damage. Automated systems are able to collate information for each KYB check from across the globe, cross-checking information across multiple sources, connecting that data and presenting it to your compliance team in a way that is accessible and actionable, while ensuring accuracy each and every time. With a reliable foundation for compliance, this accuracy is crucial for compliance leaders to have complete confidence in their organisation’s compliance with strict regulatory standards.
• Scalability as your business grows: As your business grows and expands into new markets and geographies, the ability to scale compliance processes at speed becomes critical. Automated KYB systems are, by design, inherently scalable, capable of handling a surge in KYB checks and verification requests without compromising speed or accuracy. This flexibility allows firms to ensure that compliance and merchant onboarding processes are able to keep pace with business expansion and support sustainable growth. For compliance leaders, this means they can have every confidence in managing a growing customer base without a corresponding increase in workload or need for additional headcount in the form of analysts to onboard a spike in customers.
• Real-time monitoring and updates: Risk profiles can change dramatically from the beginning of a commercial relationship, increasing risk and the threat of financial crime, and the need for real-time monitoring of clients is important for compliance with AML requirements. Automated KYB systems ensure that business information and risk profiles are always current and accurate, throughout the entire customer lifecycle. Traditional KYB methods rely on periodic reviews at defined intervals, which can leave gaps in compliance and knowledge of the customer in question with outdated information. With continuous real-time monitoring for changes to individuals or organisations (including global sanctions, negative media, new directorships and political exposure), compliance leaders have round-the-clock oversight of the very latest information and can respond swiftly to any changes in a business’ status or risk profile.
• Better customer experience: The cumbersome nature of manual KYB processes can have a negative impact on the customer experience during the initial onboarding process, leading to friction and an increased potential for abandonment before being onboarded. By automating your KYB process when onboarding merchants and businesses, customers will enjoy a seamless and user-friendly experience, with quick and efficient, but still compliant, verification processes. This modern customer experience will in turn improve satisfaction and build loyalty, as business can be onboarded without unnecessary delays or complications.
• Extensive data coverage to navigate complex corporate structures: For most manual KYB checks, compliance teams are plagued by hours upon hours of desk research, scouring countless corporate databases across multiple data providers to uncover the information that your firm requires to onboard each customer. Hours that could be better spent on more valuable, strategic compliance projects. Notwithstanding the challenges facing compliance teams around restrictions on data access in certain countries that limit the information that is available. Local regulations may limit the availability of crucial information, holding up the verification process. What’s more, a lack of local knowledge about where to look for the information needed can hinder effective due diligence, while language barriers further exacerbate these challenges. Together, these factors combine to create a melting pot of obstacles for compliance teams striving to perform thorough and accurate KYB checks on international businesses. With automated KYB systems, your team will benefit from integrated, aggregated data from multiple international sources, providing a comprehensive view of business structure, its directors, relevant documentation, financials, UBOs, PSCs, and more on a global scale. KYB platforms can access and collate data from multiple sources to create a detailed profile of the business being onboarded. This ensures a thorough and accurate KYB process with the reassurance that your team has all the information they need to make informed onboarding decisions. Armed with a 360-degree, holistic view of each client, your team can proactively reduce the risk of oversight and ensure a thorough KYB onboarding process.
• Cost efficiencies: The cost of manual KYB can be substantial, plagued with labour intensive processes, extensive paperwork, and multiple data providers to search. Automation reduces these costs by streamlining workflows and minimising the need for manual intervention. By investing in one end-to-end KYB and ID&V solution, your compliance team can achieve significant cost and time savings in the long run. The cost (both financial and human resources) efficiency of automated KYB means more resources and focus can be placed on higher-value tasks such as strategic risk management, regulatory analysis, and the exceptional cases where your professional expertise is most needed.

Key features of KYB software

KYB software offers a range of features designed to simplify and enhance the KYB process. Some key features include:

• Identity verification: KYB software utilises advanced technologies such as facial recognition, document scanning, and data matching to verify the identity of businesses and individuals.
• Risk assessment: The software assesses the risk associated with each business or customer based on various factors such as their industry, location, and financial stability. This helps businesses make informed decisions and identify potential risks.
• Compliance checks: KYB software performs automated compliance checks against various watchlists and databases to ensure that businesses and the individuals behind them are not dealing with sanctioned or high-risk entities.
• Data integration: The software integrates with various data sources and APIs to gather information and perform comprehensive due diligence. This includes accessing company registries, financial records, and public databases.
• Reporting and audit trail: KYB software generates detailed reports and maintains an audit trail of all KYB activities, providing businesses with a transparent and traceable record of their due diligence efforts.
• UBOs: KYB software will uncover the Ultimate Beneficial Owners (UBOs) of company and discover other entities they are associated with.

These key features help reduce manual effort in the KYB process, and make well-informed decisions based on reliable information.

Should you build or buy a KYB compliance solution?

Given the importance of staying compliant and the ongoing effort required to combat financial crime within the lending industry, many organisations face the challenge of how to improve and streamline their risk and compliance efforts. Typically, the question of whether to build a system in-house or purchase software is at the forefront of these conversations.

The case for buying a KYB compliance solution

Pros:

• Speed to implement: One of the most significant advantages is the speed of implementation.
• Solutions like ID-Pal are typically ready to deploy in a matter of days, allowing organisations to achieve compliance quickly and efficiently. This rapid deployment minimises any gaps in KYB onboarding, reducing the risk of non-compliance and regulatory penalties.
• Expertise and experience: Third-party vendors specialise in compliance solutions and are well-versed in the latest regulatory requirements and best practices, and your organisation can benefit from a solution that is not only compliant but also optimised for performance and efficiency.
• Cost efficiency: While the initial outlay when purchasing a third-party solution can be a barrier to some, they are often lower than the overall costs of developing an in-house system from the ground up.
• Scalability: As your organisation grows and its compliance needs evolve, these solutions can easily be scaled to accommodate increased volume and complexity. This scalability ensures that the organisation can continue to meet regulatory requirements without the need for significant additional investment.

Cons:

• Data security: When using a third-party solution, organisations must entrust sensitive data to an external provider. While reputable vendors implement stringent security measures, this reliance on a third party introduces additional risk so be sure that your chosen vendor adheres to the highest standards of data protection.

The case for building a KYB compliance solution

Pros:

• Customisation: Each lending firm has unique requirements, risk profiles, and customer bases and an in-house solution can be tailored to meet your exact needs, ensuring that the compliance process aligns perfectly with your organisation’s workflow.
• Greater control over tech stack: Building a KYB solution provides greater control over the technology stack and keeps data security close, providing complete oversight of the compliance system.
• Clarity of costs: While usually more costly overall, building your own KYB compliance solution gives you complete understanding of the costs involved – from development time to support and training, software upgrades and scalability.

Cons:

• Time and investment: One of the primary drawbacks is the significant investment of time and resources required. Developing a comprehensive and effective KYB compliance system demands a dedicated team of IT professionals, legal experts, and compliance officers and will require significant resources such as time, expertise, and ongoing investment.
• Development delays: The initial development phase of building in-house can be lengthy, delaying the implementation of compliance processes – especially where multiple departments are involved. During this period, your organisation may be at increased risk of non-compliance and potential regulatory penalties. The complexity of the project can also lead to unforeseen challenges and setbacks, further extending the timeline and increasing costs.
• Regulatory updates: In-house solutions may struggle to keep up with regulatory change and technological advancements as they happen which may, in turn, hamper your ability to ensure full compliance with new regulations when onboarding customers
• Ongoing maintenance and support: As technology and regulations continue to evolve, the system will need continuous updates and improvements. This in turn requires a long-term commitment of resources and expertise, which can strain budget and resources.

Know Your Business (KYB) FAQs