KYB and AML Screening – What is it and Why is it Significant for Business?

Businesses develop relationships with several entities every day to fulfill their needs. To maintain transparency in those relationships, global businesses practice due diligence on their prospects. But most companies tend to overlook that their opportunities are not limited to their customers only, and they need to be cautious concerning other entities related to them.

B2B and B2C relationships are the most commonly practiced business relations.

B2C means Business to Customer relationship. And B2B means Business to Business relationships. B2B relations are often overlooked while performing risk management measures. The prospects in B2B relations are equally risk-prone compared to those in a B2C scenario.

What is a B2B relationship?

A B2B relationship covers partnerships, businesses that are your customers, goodwill affiliations, mergers, online merchants, vendors, suppliers, transporters. The coverage of the B2B relationship shows that every business is bound in B2B and B2C relationships simultaneously.

These varied relationships generate future prospects for a business but also bear risks.

That is why it is mandatory to perform KYB (Know Your Business) verification on your prospects along with KYC (Know Your Customer) verification performed on your customers — as individuals.

What is KYB?

KYB is the practice of due diligence performed on the businesses in a B2B relationship with your company. Know Your Bussiness (KYB) is a regulatory obligation of enterprises along with fraud prevention practices.

KYB verification is a thorough screening of a company and the people related to it. Commonly KYB verification includes:

  • Verification of registration documents of a company.
  • Background screening (verification against the blacklists).
  • AML (Anti Money Laundering) screening of UBOs (Ultimate Beneficial Owners) of a company.
  • AML verification of the business.

How to perform KYB.

KYB can be performed manually or through a KYB screening solution. The best method is to conduct KYB screening through an online KYB screening solution. Such solutions perform online KYB screening on the businesses in realtime and provide useful risk management insights to cover against the risk, adopting a proactive approach.

A KYB screening solution provides global coverage in verification services, so it provides a global risk cover that cannot be attained with manual verification. Businesses are dealing in the digital era, where everything is automated and available online. So, why not perform online verifications to practice fraud prevention efficiently.

Outsourcing a KYB screening solution is feasible on cost and budget grounds as well.

Some KYB screening solutions also deliver customized solutions designed as per the verification needs of a business. While manual verification becomes very expensive due to high salaries that need to be paid to the verification experts, then there are the hefty resources (blacklists data, infrastructure, technological resources) that are required to perform manual verification. Also, the chances of false positives are high, and lengthy verification processes might demotivate the prospects.

Digital KYB screening is a valuable investment and it helps businesses develop transparent B2B relationships at a global level.

Significance of KYB screening.

KYB screening ensures fraud prevention and productive regulatory compliance. Regulatory compliance helps businesses achieve credibility and goodwill in the business community. The better the rating a company has from the authorities, the higher the business leads it attracts. Exceptional companies work to prevent unpredicted non-compliance fines.

KYB screening also helps businesses inefficient fraud prevention.

It helps businesses achieve their share of the global market. Enterprises are developing online connections with other companies from every corner of the world. When there is no face to face contact with the prospects, the chances of loss are high as many face-less things are ambiguous.

This ambiguity leaves a loophole in the B2B relationship, and that loophole is then exploited by the criminal entities ready to attack businesses with many types of frauds.

There are a few common scams or fraud that are committed through B2B relations are listed below:

Money laundering.

–black money is channeled through a business with weak security protocols to launder money and to aid terrorist activities.

Shell companies fraud.

–fake companies are set up to wash black money. Black money is incorporated in the business proceeds and declared as legit revenue. In case a shell company is found by the authorities, the credibility of the companies conducting business with it is also tarnished.

KYB is significant for global businesses to achieve retainable growth in the current scenario of fraud and increasing regulatory scrutiny.

Brexit will change the landscape of AML compliance in the UK.

Brexit is in the news for a few years and postponed a couple of times. The last delay was witnessed in October 2019. Now the current scenario is that the EU authorities have given one last chance to the UK.

The prime minister of the UK hinted that the UK is ready for a no-deal Brexit if it is not finalized at the end of December 2019. Businesses in the UK and the EU are holding their breath to see what is coming next due to the ambiguity in the AML/KYC and trade regulatory landscape.

Currently, the UK is following the AML/KYC regulations of the EU, and the businesses are reporting to the EU authorities like Europol.

Whenever the UK leaves the EU, there will be a considerable shift in its regulatory landscape.

In the case of deal Brexit, the UK will leave Brexit while the EU authorities assist it for a smooth transition period. On the other hand, in the case of a no-deal Brexit, the UK will be leaving abruptly without any transition period.

Changes in AML compliance and regulations.

Brexit will ensure that the UK will change its regulations that were affiliated with the EU previously. News also reported that the UK is expected to develop its new financial regulatory authority to regulate the businesses. It might be true because the UK was always very keen on implementing regulations with strict behavior.

After Brexit, there will be a need for strict security measures as it’ll be exposed to a high risk of financial crime. In the case of no-deal Brexit, there will be a loophole in the regulatory landscape as the UK will be going through a regulatory shift.

Nicola Gratteri, a public prosecutor in Calabria, predicted that Brexit might aid the Italian mafia in pooling in laundering black money to the UK.

How will businesses be affected?

The businesses operating in the EU will be required to change their AML compliance practices in alignment with new regulations imposed in the EU. This shift will change the compliance strategy to some extent while causing some extra budget if businesses are required to register with the new financial regulatory authority of the UK.

Data protection and collection regulations.

Currently, the UK is complying with the GDPR (General Data Protection Regulations) of the UK for data protection protocols. It is expected that the UK will continue to follow these instructions, but the supervisory authority will be from within the UK.

Implementation of AMLD5.

AMLD-5 is expected to be implemented completely in January 2020. In the case of deal Brexit, the UK will apply AMLD-5 while the contrary will happen in case of no-deal Brexit. It will leave a loophole in the AML regulations of the UK.

If this loophole is created, it’ll exploit by money launderers and terrorist financiers.

If the loophole is attacked, it will mean more risk of fraud for businesses in the UK. The additional risk will make the companies practice stringent due diligence scrutiny on their prospects.

Real-time AML screening of your prospects to act proactively during this regulatory shift.

High risk can only eliminate with proactive fraud prevention, which requires strategic planning. The planning is to cover for the upcoming shift in the AML/KYC regulations of the UK.

The reporting entities should run real-time AML screening on their prospects.

For the outsourced screening, a real-time AML screening solution will be a feasible method for this screening.

Using an online AML verification solution is a cost-effective method. Now businesses have no time left to develop an in-house solution to cater to this need as Brexit is approaching. AML screening solution can integrate with a web portal, website, or app within minutes.

Hefty changes in the regulations will be challenging to incorporate, and outsourcing an AML KYC solution will share the burden.

The businesses in the UK need to adopt a proactive approach towards fraudsters.

Businesses in every country need to protect against fraud. Businesses in the UK need to be especially vigilant at present and adopt a proactive approach towards fraud. When there are increased efforts, diligence, and proper regulatory compliance — all of us benefit.

Regulatory compliance shouldn’t be the only incentive behind the thorough screening of customers. Businesses should become better adept and responsible for customer data and security.

Jeff Parker

Jeff Parker is an identity fraud expert and author of various blogs writing about advanced technologies including artificial intelligence, machine learning and data science. Previously, he has worked as a consultant, often assisting small businesses in digitalization and online fraud prevention.

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