Recently, we held an online event where two Know Your Business (KYB) specialists discussed what the KYB process looks like today and how companies can build a seamless KYB-KYC experience. It was jam-packed with useful information — so much so that we split the recap into three!
In our first recap, we went over the basics — what KYB is, why it matters, who should care, and more. Here, we’ll go over what KYB often looks like (spoiler alert: it’s not pretty).
The Know Your Business (KYB) process
The KYB process can vary from country to country based on regulatory requirements, but ultimately, there are some commonalities across different jurisdictions. Usually, the process involves three main steps:
1. Verify the business.
To do this, you need to collect information about the business — usually its name, address, and registration number at a minimum — and any relevant business registration documents.
Keep in mind that this step might look different depending on the type of business you’re trying to verify. For example, sole props may not show up in authoritative data sources, so you may want to perform additional checks to verify the legitimacy of that individual and ensure you know who they are.
2. Identify and verify the company’s ultimate beneficial owners (UBOs).
Ultimate beneficial owner (UBO) requirements vary from country to country. In the US, it’s very much self-reported, so it can be hard to be sure who owns what (though there's upcoming regulation that could potentially create a central database for beneficial ownership information like in other countries). In the meantime, the CDD Final Rule requires firms to verify beneficial ownership with a “reasonable belief.”
To help identify the company’s UBOs, you may want to require them to submit a document that lists out the beneficial ownership for each person and the amount of equity each individual owns.
After identifying who the beneficial owners are, you can run standard Know Your Customer (KYC) checks on each individual.
3. Maintain updated customer information and monitor risk on an ongoing basis.
Once you’ve verified that the company and its main stakeholders are safe to work with, it’s important to conduct ongoing due diligence — like KYC, KYB isn’t something you should only perform during onboarding. The CDD Final Rule requires covered institutions to “conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”
In other words, it’s not enough to check whether a business is on a watchlist at the beginning of your relationship. Situations change, so you’ll also want to continually check throughout their customer lifecycle.
How do businesses usually conduct Know Your Business?
While KYC processes have become more streamlined, with a variety of automation tools, data aggregators, and all-in-one solutions available, there hasn’t been an equivalent shift for KYB. Today, many KYB tools focus on cleaning up and aggregating messy data sources — not necessarily streamlining the process itself.
As a result, the process usually ends up looking something like this:
- The business collects company information such as the business name, address, and EIN or business registration number from the individual representing the business. For this step, we’ve seen everything from custom-built forms to Google forms or long PDFs that the two parties send back and forth via email.
- The business runs business verifications against the information collected in step one. Today, many use Google or manually input these pieces of information into different platforms.
- After identifying the beneficial owners — either by Googling or asking the company to declare its owners — the business collects information on each of them and runs KYC checks, whether that’s through another vendor or via an in-house process.
- The business cross-references all the information and makes a final decision about whether to work with the other company (and the people behind it).
- The business relays its decision to the company — usually via email or a phone call.
What are some common challenges of Know Your Business?
Historically, the KYB process has been extremely manual, disjointed, and complex. Some common KYB challenges include:
- Having to manually collect information across multiple sources. For example, Googling information about the business, asking company representatives who the beneficial owners are, and more.
- Multiple back-and-forths between the customer — partially to collect more information, and partially to keep them updated on where you are in the decision-making process.
- Multiple vendors handling different parts of the process (for example, one to collect information, one to verify business information, and one to KYC the beneficial owners) — with no way to connect each system.
This results in issues including:
- More work for your team, from having to Google information to sending multiple emails to the business and making manual decisions.
- Potential bias and increased room for error due to manual reviews.
- Potential data inconsistencies when using multiple vendors.
- Unideal experience for the customer, who may get tired of the long wait time and decide to take their business elsewhere.
While KYB is important, the traditional KYB process isn’t ideal, as it’s still very manual and error-prone. Fortunately, it doesn’t have to be this way. Head over to our last recap to learn how to build an efficient KYB process, or learn how Persona KYB can help you onboard businesses faster.