A Guide to KYB: How to Adjust Compliance to Different Industry Specifics

KYB check may be the most relevant topic in AML compliance right now. To help you keep up with the standard rules and tricky nuances, we have put together a guide based on our experience establishing and automating KYB processes in different industries and dozens of jurisdictions.

Business verification or KYB is a complicated topic, yet it is a mandatory procedure for regulated companies. It includes retrieval of a company’s structure, identifying UBOs, managing risks, etc. And it surely depends on a case and a jurisdiction.

What is a KYB check and its types

KYB or business verification is a mandatory requirement for financial institutions and other related entities to verify the identities and the structure of their corporate clients.

Taking into account the complexity of KYB, there are two main approaches – manual and semi-automated business e-verification checks done with the help of an external or a company’s own solution.

Manual KYB check

Carried out by a company’s legal department, such checks require an extensive research across many data sources to verify the legitimacy of the submitted registration numbers, information on UBOs, etc. Company experts then analyze the collected data and give their feedback.

The cost usually varies from 20 to 200+ EUR depending on a case and on a company’s reputation.
Verification time takes up a few days.
Suits for a company with a relatively small amount of verification checks.

Semi-automated KYB check

This type of verification is considered the most effective. For a semi-automated check, the information on legal entities is compared with corporate documents provided by the user, while UBO documents (ID, selfies, PoA) are automatically verified across paid and public databases (such as data.gov.uk, data.gov.in, open.canada.ca).

The cost usually varies from 35 to 45 EUR.
Verification time from a few hours to 3 business days.
Suits for a company with a large number of verification checks.

Note: Fully automated KYB checks are not supposed to exist since it requires manual research through a relevant database to find the correct information and properly check the corporate documents.

Now that we’ve figured out the basics, let’s take a further look at how to conduct a KYB check.

Stages of KYB check

Each company has its own specific AML policy and KYB guidance which implies verification of legal entities and UBOs. There may be nuances for each case but the demands to KYB verification are almost always the same.

1) Collect all the information properly

The most standard list of required documents includes registration number, date of incorporation and current existence, address and legal form relevant to the country’s AML legislation.

In addition to that, the legal department obtains at least the certificate of incorporation/certificate of registration or another similar document, depending on the jurisdiction.

  • Certificate of incumbency – a corporate document with stated shareholders and CEOs;
  • Current excerpt from the public registry of companies – public registry statement;
  • Certificate of good standing – confirmation that the company complies with the legal requirements.

2) Verify the ultimate beneficial owners (UBOs)

Beneficial owner check discloses if the legal entity is used as a cover for money laundering or other illegal activities. It requires to perform standard AML/KYC procedures.

  • Acquire company credentials;
  • Collect full and up-to-date information on the company;
  • Identify legal entities who have a percentage in shares or interests;
  • Reveal the total percentage of shares, management control, and ownership stake of every individual involved;
  • Carry out an AML/KYC check.

3) Make a decision on the collected information and documents

The data from multiple reports and several data sets can often be old or inaccurate and has to be treated with caution. Besides, each company structure is different and can change over time. So, it could be hard to gather and interpret the data correctly.

In some cases, the legal department may need to implement Enhanced Due Diligence (EDD) to find out whether a company is high risk or not. For instance, if a politically exposed person is involved in the process, the legal department should conduct EDD in order to double-check with the FATF blacklists, look through adverse media online, etc.

Let’s take a closer look at where you might need to use KYB.

KYB for debt management

Since debt management companies lend money, KYB check is not only about compliance but about making sure their money will be returned.

The purpose: to check the solvency of a company.

Necessary steps:

  • Verify the company’s director and their rights to act on behalf of the company. Identify the company’s debts;
  • Conduct a detailed audit of legal entities and individuals to identify possible conflicts of interest, disclose beneficial owners and other hidden risks;
  • Use adverse media screening to verify the person who is in debt.
  • Check if they were fined or sanctioned for AML non-compliance.

KYB for high-risk corporates

The verification of high-risk corporates cannot be carried out as a basic KYB check due to stronger exposure to fraud and corruption.

The purpose: to understand the risk of financial crime and reputational risk a client might carry.

Necessary steps:

  • Accept corporate documents only if they are apostilled;
  • Apply enhanced due diligence;
  • Use adverse media to conduct EDD for affiliated individuals (UBO, directors, etc.).

Accredited investors verification

The total flow depends on the specific compliance demands. There are various requirements in different jurisdictions but in this article we rely on the most well-known Rule 501 (US legislation).

The purpose: make sure that an individual has an accredited investor status.

Necessary steps:

  • Determine your jurisdiction policy and specifics;
  • Collect the investor’s personal data (name, address, email, etc);
  • Provide a questionnaire that will include a balance sheet and supporting documents such as financial statements to verify the investor’s ownership of the relevant assets.

All in all, the KYB check seems complex, but in fact, it is mostly based on a consistent legal system and comes down to a standard procedure and certain nuances that slightly vary from case to case.

To automate routine processes and make them more accurate, think about using a customized KYB solution 😉

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