Anti-Money Laundering (AML) compliance presents ongoing challenges for regulated businesses: verifying clients, managing risk, and meeting regulatory requirements without overwhelming paperwork or operational slowdowns. Two key approaches are used to address these issues: Know Your Customer (KYC) and Know Your Business (KYB). Which of these two you employ depends on the nature of your business and your client base. Many organisations need to implement both KYC and KYB processes to fully meet their compliance obligations.
Common pain points in AML compliance
AML regulated businesses often face these key challenges:
- Slow onboarding: Client due diligence can delay business operations.
- Resource intensive: Compliance tasks often require significant staff time, diverting resources from core business activities.
- Changing regulations: Keeping up with AML regulations across different jurisdictions requires constant attention.
- Non-compliance risks: Failing to meet AML requirements can result in large fines and reputational damage.
- Excessive flagging: Over-cautious screening can delay legitimate clients unnecessarily.
- Information gaps: Traditional checks may miss key information, especially for complex business structures.
- Human error: Manual processes can lead to mistakes that compromise compliance efforts.
Understanding KYC: Know Your Customer
KYC verifies the identity of individual customers. It's a key part of customer due diligence (CDD) used across many industries, especially in financial services.
Key aspects of KYC:
- Individual focus: KYC deals with personal customers.
- Identity verification: Confirms a person's identity using documents like passports or driver's licenses.
- Personal background checks: May include credit history, employment verification, and sanctions list screening.
- Ongoing monitoring: Requires continuous tracking of customer activities and transactions.
Common KYC users:
- Banks and financial institutions
- Insurance companies
- Cryptocurrency exchanges
- Online gambling platforms
- Some retail and e-commerce businesses
Understanding KYB: Know Your Business
KYB verifies and analyses the businesses you work with. It's crucial for B2B relationships and AML regulated entities dealing with corporate clients.
Key aspects of KYB:
- Business entity focus: KYB examines companies, partnerships, and other business structures.
- Company verification: Confirms a business's legal existence, registration details, and operational status.
- Ownership structure analysis: Investigates who owns and controls the business, including ultimate beneficial owners (UBOs).
- Business activity assessment: Examines the business's operations, industry, and typical transaction patterns.
- Risk profiling: Evaluates potential risks associated with the business, including jurisdictional and industry-specific factors.
- Ongoing monitoring: Tracks changes in ownership, business activities, or risk profiles over time.
Common KYB users:
- Law firms
- Accounting firms
- Corporate banking
- Business lending institutions
- Payment service providers
- Professional services firms
- Commercial real estate agencies
How automated KYB addresses AML compliance pain points
Streamlined onboarding for complex clients: Business clients often have intricate structures that can slow down the onboarding process. KYB employs streamlined verification processes specifically designed for business entities. This can significantly reduce onboarding times, sometimes from weeks to days, without compromising on thoroughness.
Enhanced risk assessment: Traditional checks might miss crucial information about business clients. KYB provides a more complete picture by analysing business structures, activities, and associations in detail. This thorough approach leads to more accurate risk assessments, helping businesses make informed decisions.
Reduction in false positives: Overzealous screening often flags legitimate clients, causing unnecessary delays. KYB's nuanced understanding of business clients enables more accurate risk scoring. This precision helps reduce false alarms, allowing businesses to focus on genuine risks while processing legitimate clients more efficiently.
Alignment with evolving regulations: AML regulations are constantly changing, and recent trends emphasise understanding business clients and their ownership structures. KYB naturally aligns with these regulatory directions, helping businesses stay compliant with current and emerging requirements.
Optimised resource allocation: Compliance tasks can drain significant staff time from core business activities. KYB leverages automated processes for business verification and monitoring. This automation frees up staff to focus on higher-value work, improving overall operational efficiency.
Effective ongoing monitoring: Tracking changes in client status over time can be challenging. KYB systems typically include automated alerts for changes in business status, ownership, or risk profile. This ongoing monitoring helps businesses stay on top of changes without constant manual checks.
Clarity on complex ownership structures: Identifying ultimate beneficial owners (UBOs) in complex business structures is often difficult. KYB provides tools for mapping and analysing these structures, making UBO identification more straightforward and accurate.
Core needs of AML regulated businesses
AML regulated businesses aim to:
- Verify clients efficiently and thoroughly
- Assess and manage risks accurately
- Maintain compliance without excessive resource use
- Quickly adapt to regulatory changes
- Minimise compliance-related business disruptions
- Build trust with regulators and clients
KYB helps regulated entities meet these needs by providing a thorough and efficient approach to business client due diligence. This enables AML regulated businesses to fulfill compliance obligations without sacrificing efficiency or growth opportunities.
The value of knowing your business
Understanding clients deeply is essential in today's business environment. KYC remains valuable for individual customer relationships, but KYB provides a more thorough solution for AML regulated businesses primarily dealing with corporate clients.
By tackling key pain points and helping businesses meet their core compliance needs, KYB allows regulated entities to:
- Onboard clients faster and more confidently
- Make decisions based on thorough risk assessments
- Use resources more efficiently
- Anticipate and meet regulatory requirements
- Develop stronger, more trusted business client relationships
As AML regulations and business structures become more complex, the ability to truly "know your business" grows increasingly important. KYB approaches and technologies can help AML regulated businesses turn compliance into a competitive advantage, supporting growth while upholding high standards of integrity and risk management.
Exploring automated KYB solutions could help you tackle your key pain points and meet your compliance goals more effectively.
