What is KYB? Keeping compliant with ‘Know Your Business’ checksUnderstand what KYB checks are, how to conduct them, and the benefits they offer

From an increase in ‘dubious’ company addresses to organisations being set up with directors based outside of the UK, the past few years have seen a stark rise in suspicious business activity.

In fact, between 2019-2021 there was a 116% increase in EU-defined countries who are deemed high risk at purportrating money laundering. The total bill of this particular financial crime? An extraordinary £1.8 trillion and counting.

As a business owner who works with other businesses – either exclusively or alongside individual consumers – this is understandably worrying. How do you know that the company you’re doing business with isn’t a front for criminal operations that could leave you open to financial and reputational damage?

While no industry has a single source of truth to verify whether a company is legitimate and safe to do work with, multi-source data corroboration and verification – such as Know Your Business checks – can help.

What are ‘Know Your Business’ checks?

A Know Your Business check – also known as a KYB check – is the process of identifying and verifying a company during onboarding, remediation or in-life monitoring. Checking that the organisation’s identity is genuine and valid can help prevent financial crimes, such as money laundering, terrorist financing, and fraud.

KYB checks confirm that a company exists and is active, and are considered due diligence that will ensure your business adheres to Anti-Money Laundering (AML) regulations. They will also allow you to better understand a company’s:

• Customer profile
• Directors
• Jurisdiction of operations
• Persons of Significant Control (PSC)
• Principal activities
• Shareholders
• Suppliers
• Ultimate Beneficial Owners (UBOs)

Using multiple data sources, such as the Financial Conduct Authority (FCA), Charities Commission, Companies House, and open government-licensed data, will mean you can corroborate and validate the information you find. This in turn will allow you to better assess the level of financial risk the company may expose you to.

Let’s take a look at this in practice.

Say a customer you’re planning on working with is found with consistent information across five different third-party data sources, you should feel confident that they exist and undertake legitimate business activities.

Now let’s say the customer appears inconsistently across a set of data sources – if at all – or there’s evidence to suggest they provide undisclosed monetary services…

These red flags should give cause for concern and encourage you to seek further information or clarification on who owns the business and exactly what they do, before you decide to work together.

Put simply, a successful KYB check will surface any potential red flags that could indicate a greater risk of illegal activities taking place within an organisation.

How is KYB different from other checks?

There are three main checks businesses can put in place to assess their risk of financial crimes: Anti-Money Laundering, Know Your Business, Know Your Customer (KYC).

The main objective of each of these is to ensure all financial transactions made with them are legitimate and safe. However, the difference can be found in the type of customers they check.

Who should undertake KYB checks?

For banks and financial institutions, undertaking KYB checks and ensuring AML compliance is mandatory. This is due to the high risk of them being exploited for money laundering, terrorist financing, fraud, and other financial crimes.

However, this isn’t the only industry subject to the checks. In fact, any business that is required to adhere to AML regulations should ensure KYB due diligence too. These include:

• Accountants and tax advisers
• Auditors
• Asset managers
• Banks, credit, and financial institutions
• Cryptoasset marketplaces and businesses
• Estate agents
• Gaming, gambling, and casino businesses
• Government and public services
• Insurance
• Legal and compliance professionals
• Notaries
• Online banking

Remember, the above list is not exhaustive and even if your company isn’t required to undertake KYB checks, they’re still a good idea as they can help protect you from financial crimes and reputational damage.

What are the benefits of KYB checks?

Risk mitigation

Due to the prevalence and evolution of financial crimes, large companies can spend over £100m on remediation activity each year. KYB checks can help prevent you from doing bad business, making it an essential and straightforward way to mitigate risk.

Financial crime prevention

Financial crime is said to cost the UK economy around £290 billion per year. From terrorist financing and money laundering to fraud, ensuring due diligence through KYB compliance means you can help prevent illegal financial activities.

Improved lender acceptance rates

Putting in place a KYB solution enables swift and accurate business verification, reducing the need for lenders to do manual checks and speeding up approvals. This approach not only makes onboarding more straightforward, but also supports safer and more efficient lending decisions.

Reduced time and cost for investigation

KYB checks are a verification method that makes due diligence more efficient, allowing financial institutions to focus time and attention more effectively elsewhere.

Product and service personalisation

For banks and financial service providers specifically, KYB checks will give you access to more detailed client information. This is beneficial as you’ll be able to gather insight into the products and services your customers may be using, therefore allowing you to develop and update your solutions accordingly. Also, a more accurate view of your customer can allow greater automation within the due diligence processes, developing targeted pathways depending on the risks associated with the company.

Regulation compliance

Regulated businesses, particularly within financial services, must adhere with requirements and due diligence to prevent money laundering and other financial crimes. KYB procedures help ensure adherence and avoid the legal repercussions or brand-reputation damage that can happen by not staying compliant. Furthermore, using multiple sources of data to corroborate information can further evidence, to the regulator, the stringent checks you’ve put in place.

Real-time and continual updates

If working with a KYB service provider or using an automated KYB system, you can ensure real-time database monitoring which can flag up missing information and risks as they happen. This in turn provides greater protection for your business. You can stay up to date with changes to customer profiles and risk, as well as reducing the cost, time, and resource requirements needed for manual KYB checking.

How do I undertake KYB checks?

KYB requirements can vary from country to country and be subject to regional laws and regulations. However, there are three fundamental steps that all KYB processes should include.

1. Company verification

There are as many as 150 different data points that can be used for KYB verification. While it’s not necessary to source data for every single area, collating as much information as you can about a business you’re planning to work with is always a good idea. After all, the more you know, the better you can manage risk.

It’s essential that this documentation is obtained from reliable sources and can be scrutinised to ensure authenticity and verification.

It’s also worth remembering that while Companies House can be a valuable source of data, it does not confirm the legitimacy of that data, meaning this verification needs to be done elsewhere.

2. UBO verification

A UBO is the individual who ultimately benefits from a company or has ultimate effective control over it.
KYB checks require the identification of a company’s UBO to help identify any risk associated with ownership, as well as prevent the use of shell companies and ensure the business isn’t being used for illegal activities.

3. Ongoing monitoring

Just because a company and its people aren’t involved in suspicious activity now doesn’t mean they won’t be in the future. So, following onboarding and the initial verification of data points, identities, and ownership structure, you must remain vigilant to change and future risk. This isn’t just for the benefit of your business but to ensure FCA and regulatory compliance too.

Regular monitoring of updated information, and periodic transaction reviews will help flag suspicious or fraudulent activity.

Data sources for KYB verification

Experian use over 20 different data sources for KYB, and the data sources can be broadly categorized into four main categories of: address verification, bureau data, public data and fraud and watchlist data.

Typical KYB ‘flags’ and adverse markers of suspicious activity

There are many key indicators used to identify potential risks or irregularities within a business’s operational and structural setup during the verification process. These can include the following: