KYB: Why is it becoming increasingly necessary?

The importance of thoroughly understanding our business partners has become more crucial than ever. KYB (Know Your Business), the set of processes followed to gain a comprehensive insight into a company’s structure, is not only a fundamental tool for risk management and regulatory compliance but also plays a vital role in building solid and lasting business relationships. 

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YB helps assess the history, finances, and relationships with other entities, enabling informed decision-making on potential business ventures and mitigating potential risks. 

Despite the growing adoption of technological solutions and process automation, KYB remains a complex and challenging process. The proliferation of complex corporate structures, lack of transparency in ownership information, and increasing cyber threats demand a more sophisticated and proactive approach to identity verification and risk assessment. 

The global KYB market is experiencing an unstoppable boom. With a value of $263 million in 2022, revenues are estimated to continue growing to reach $712 million by 2030. This increase (13% annually) reflects the need for companies to ensure transparency and security in their business operations. 

Banks are undoubtedly the primary end-users of KYB solutions (also Know Your Customer or KYC solutions) as they need to continuously assess the risk associated with their clients and partners. Digitalization and the development of cloud-based technology streamline processes that were previously cumbersome. 

Locating UBOs: at the core of a KYB strategy 

Identifying Ultimate Beneficial Owners (UBOs) is an essential element of KYB processes that financial institutions and other regulated entities must undertake to comply with anti-money laundering and counter-terrorism financing regulations (AML/CFT). Knowing UBOs allows these entities to assess the risk of a company or individual being used for illicit activities. 

In March 2023, the Financial Action Task Force (FATF), an intergovernmental body established in 1989 by the G7 to develop policies to combat money laundering and terrorism financing, updated its global guidelines on beneficial ownership, emphasizing the importance of a comprehensive strategy for identifying UBOs. Authorities must have access to accurate and up-to-date information on company ownership, and companies must ensure that ownership information is kept current. 

In Europe, on April 24, 2023, as part of a comprehensive update developed by the European Parliament to combat illicit activities, measures were introduced including a review of the UBO definition, a reduction in the ownership threshold for identification, and stricter measures for high-risk companies. These changes aim to enhance transparency and prevent misuse of companies. 

Hotspots in KYB protocols to consider 

To gain a comprehensive understanding of the current KYB landscape and implement solutions that truly meet the needs of banks, it is essential to consider these factors: 

• Robust security measures and fraud protection 

 Robust KYB solutions must incorporate strong security measures to protect clients’ confidential information and prevent unauthorized access. This includes techniques such as data encryption, multi-factor authentication, and role-based access control. 

Multi-factor authentication (MFA) adds an extra layer of security to the login process, requiring users to provide more than one verification method, such as a password, fingerprint, or code sent to their mobile phone. This significantly complicates unauthorized access by cybercriminals. 

User Behavior Analytics (UBA) monitors users’ activities within the platform to identify unusual patterns that may indicate fraudulent behavior. For example, if a user attempts to access an account from an unknown location or performs unusual transactions, the system can alert administrators to investigate further. 

Anomaly detection techniques analyze large data sets to identify transactions or behaviors that deviate from the norm. This can help identify fraudulent activities that may go unnoticed with traditional detection methods. 

• Growing number of Small and Medium Enterprises (SMEs)  

More than half of the world’s workforce is employed by small or medium-sized enterprises (SMEs), totaling approximately 220 million SMEs. An increasing number of these businesses are opting for KYB solutions, seeking to ensure transparency and security in their business operations.  

It is crucial that these resources are accessible, cost-effective, and easy to implement to meet the specific needs of SMEs. Additionally, education and training on Know Your Business requirements are essential to help them comply with constantly evolving regulations and avoid potential economic consequences. 

• Need for more digital and user-friendly KYB solutions 

The demand for more efficient processes is driving the need for digital, automated, and user-friendly KYB solutions. Automation of data collection, document verification, and risk assessment reduces manual workload and improves efficiency. Intuitive interfaces and simplified workflows enhance the user experience and facilitate KYC adoption. 

• Navigating the labyrinth of globalization 

With the increasing globalization of businesses, companies face the need for KYB solutions that can address the complexity of operating in multiple jurisdictions, languages, and regulations. This diversity of business environments requires KYB solutions that are flexible and adaptable to ensure regulatory compliance in all areas where companies operate. 

Additionally, there is a growing demand for solutions that can seamlessly integrate with companies’ existing systems, providing a holistic view of compliance and greater efficiency in business processes. This flexibility allows companies to more effectively manage the risks associated with their business partners and comply with local and international regulations in an increasingly complex and globalized business environment. 

TrustCloud KYB validates information, data, and documentation from entities with which it interacts and transacts online. Additionally, it fully automates a company’s records, contributing to improving the efficiency of Know Your Business, Anti-Money Laundering (AML), KYC, and Due Diligence processes related to legal entities. 

Contact our KYB experts now and avoid the consequences of non-compliance