The KYB process: 5 best practices for implementation

The Know Your Business (KYB) process refers to the due diligence measures performed by a firm to gain a comprehensive understanding of its corporate customers. The primary objective of the KYB process is to ensure organizations do not unwittingly enter into a business relationship with a firm that has links to fraudulent or illicit activities. By gathering information about their customers’ ownership structures, verifying business legitimacy, and screening associated entities against adverse media, watchlists, and politically exposed person (PEP) lists, firms can identify potential risks and make informed decisions about entering into business relationships. 

5 best practices for implementing an effective KYB process

From start-up fintechs implementing a KYB process for the first time to legacy financial institutions looking to enhance their company screening measures, these five best practices can be used by firms to help inform an effective KYB risk management framework.

1. Create KYB policies and procedures

Company policies and procedures should be recorded to help guide efficient financial management, risk mitigation, and the alignment of internal operations. These documents should also be periodically reviewed to ensure they remain consistent with the firm’s risk appetite and the external environment. To ensure analysts are aware of how specific corporate screening tasks should be approached, firms may choose to document the following KYB policies and procedures:

• The name of the senior manager that is responsible for the development and implementation of the policy and relevant procedures
• How often the KYB policies and procedures will be reviewed.
• What happens if a business or related entity is deemed high-risk (e.g., rejecting the company at onboarding, ceasing trading, on-site visits, etc.).   
• How to report suspicious activity to a designated authority
• If a KYB database, software program, or other service is utilized in the firm’s KYB process. 
• Any monitoring controls that are in place.

2. Provide training to employees

Often representing a firm’s first line of defense, compliance staff should receive appropriate training from the company’s Money Laundering Reporting Officer (MLRO) on how to effectively perform KYB checks per the firm’s policies and procedures. Employee training is a key component of any anti-money laundering and combatting the financing of terrorism (AML/CFT) program, as it ensures staff have the knowledge and understanding required to recognize financial red flag indicators and emerging industry trends. At a minimum, KYB training should cover:

• Information on AML/CFT and KYB regulatory compliance requirements.
• Internal policies to prevent financial crime.
• Recognizing illegitimate businesses and anomalous activity in customer-provided documents. 
• Assessing beneficial ownership structures. 
• Red flags relating to the money laundering and fraud typologies that pose a medium to high threat, according to the firm’s latest risk assessment.
• How to escalate suspicious activity.

3. Utilize advanced technologies

Advanced technologies, such as solutions built on artificial intelligence (AI), machine learning, and automation, can significantly enhance the efficiency and speed of KYB processes. In addition to automating repetitive tasks and performing accurate data analysis at scale, advanced functionalities like dynamic risk scoring can help firms accelerate the decision-making on whether to onboard entities perceived as high risk.  

To avoid a complex and lengthy implementation process, firms can opt for an API-led KYB solution. The ComplyAdvantage API journey has 3 steps:

• Search for a company (optional). This can be done by inputting a company’s name or its Taxpayer Identification Number (TIN). 
• Create a case. If an analyst already knows the officers and/or controlling entities (beneficial owners and shareholders), these names can be added to the request, and they will be made part of the case and screened. 
• Receive a webhook with the results. The outcome of the screening task is a webhook that contains all case information, including:
  • The company being screened.
  • Officers and controlling entities of the company.
  • Risks evaluated against the company and its entities.

4. Implement a risk-based approach

Since corporate environments are ever-changing, risks associated with business relationships can evolve over time. A risk-based KYB process enables firms to adapt to these changes by focusing on entities that pose a higher risk. Since not all business relationships will carry the same level of risk, firms that adopt risk-based KYB screening measures are more likely to identify and mitigate potential risks proactively. 

Adopting a risk-based approach to KYB also demonstrates a commitment to robust risk management practices and regulatory compliance. This can enhance a firm’s reputation and credibility in the eyes of regulators, partners, customers, and other stakeholders. Building trust through strong risk management practices can give organizations a competitive advantage, attracting reputable business partners that value strong risk mitigation measures. 

5. Perform ongoing monitoring

Once a corporate customer has gone through the KYB screening process, they must be subject to ongoing monitoring measures. This involves regularly monitoring and evaluating the risks associated with the business and its controlling entities to ensure they continue to meet the organization’s risk appetite and compliance requirements. Automated systems that screen entities against sanctions lists, watchlists, and adverse media in real-time should be prioritized to create the most accurate picture of a customer at any given time.  

Additionally, ongoing monitoring can provide firms with valuable insights that can be used to improve their KYB processes continually. By analyzing data collected in the ongoing monitoring stage, organizations can identify trends, refine compliance controls, and update policies and procedures to adapt to changing risks. 

KYB by ComplyAdvantage  

With KYB by ComplyAdvantage, firms can streamline their approach to corporate screening and onboarding while improving efficiency and conversion rates. With an automated KYB workflow, compliance teams can process up to 125 percent more cases per month without increasing headcount by using dynamic risk scoring to improve case allocation. Additionally, firms can experience an increase of up to 68 percent in conversion rates by accelerating the speed at which accounts are opened, all without compromising on risk. Request a demo or contact a member of the sales team to find out more.