What is KYB and how is it done for businesses in India?

Apr 05, 2024

The B2B industry is increasingly being subjected to money laundering and fraud.

As of 2021, 98% of B2B manufacturers, retailers, and marketplaces have at one point or the other faced financial losses caused due to fraudulent attacks. 

To ensure safety throughout the marketplace, businesses ought to know each other and work alongside each other.

This process would require company identification, evaluation of the company structure, determining the beneficial owners, and the verification of all this information.

These Know Your Business (KYB) measures are also an AML national and global requirement. The majority of the jurisdictions have almost similar KYB measures and requirements.

Still, fulfilling all the necessary conditions with full compliance with the law can be enormously challenging and resource-heavy. 

What is KYB verification?

Know Your Business, or KYB is known to be a due diligence procedure that is conducted to establish the purpose, ownership, activities, and structure of a company.

With KYB onboarding, companies can determine the authenticity of their dealing entities so that those identities cannot be used to cover up illegitimate business owners and purposes. 

What is KYB? The answer is simple. KYB verification is a business’s Anti-Money Laundering (AML) compliance. Companies should be aware and must know how to protect their interests before engaging in business with any other organization.

Companies have to be careful and maintain their safety when it comes to gaining knowledge of whether their money is being used by illegal or corrupt business owners, money launderers, or shareholders.

Here KYB applications come to play and help in determining if a corporate business is dealing legally or through a shell company. Know Your Business verifies every company’s potential customers’ personal and corporate information. 

Why is KYB necessary for your business?

The major and most obvious reason a business needs KYB verification is fraud protection and regulatory compliance. The details of both these reasons are

Regulatory compliance

KYB onboarding assists AML- regulated companies to comprehend and analyze if their partners, customers, or vendors are

• Displaying financial terrorists or money laundering risks

• Involved in any illegal financial activity

• Subject to any regulatory actions

Various regulatory institutions like European Banking Authority (EBA) and FATF mandate companies to verify and identify their documents and UBOs according to the guidelines.

This procedure is enormously beneficial for businesses because it enables them to be with law enforcement and get adequate support whenever they report any suspicious activity or fraud.

In order to get the best help companies also need to provide any and all information that they hold on their customers and the activities they think are suspicious.

If a company provides inadequate or no CDD (customer due diligence) this is considered to be an AML regulation violation.

This means that the company has proceeded to work with corporate customers without performing the necessary due diligence, which obviously in turn puts the company at risk of dealing and involvement with money laundering or financial illegal activity. 

Fraud prevention

KYB is a company’s protective cover against any kind of fraud or illegal breaches done by any of its patterns, customers, or vendors.

It effectively helps in reducing money laundering, terrorist financing, and reputational risks. Fraud can easily happen to any business. 

Financial fraud and money laundering scams can easily enter any business. For example, some fraudster is able to get their hands on the information of a company that has been dormant for a while.

They would rename it and start placing orders in the name of that company with the suppliers and they basically do not intend to pay for the supplies.

Before you catch hold of this scheme the fraudster would already be gone. This is why it is absolutely necessary for any company to notice any of the following red flags

• Unlike company office and shipping address

• No solid company credit record

• The official documents of the company have errors and mistakes

• Ownership of the company has been highly dynamic and changes frequently

How KYB is done for businesses in India

1. Collection company data

While filing for a KYB verification, a company is required to have all these documents

• Legal address

• Postal address

• Registration number 

• Tax number

• Bank account verification

• Credit reports

This significantly reduces the risk of collaborating with any company which can open your business to financial frauds and money laundering scams. 

2. Verification of beneficiaries

Ultimate Beneficial Owners (UBOs), representatives, and shareholders are all needed to go through a KYC verification process in the system. There are multiple automated KYC options available that can be put out for them.

Along with the Identity verification, UBOs, representatives, and shareholders are also required to pass the liveness check and screening against different watchlists like sanction lists, PEPs lists, adverse media, etc.

3. Risk assessment

Moving forward in the process, the company is also required to assess and file all its assets and liabilities to properly evaluate the risk which can be posed due to fraud.

It is important for any company to have a clear view of the value of its assets and business type. 

4. AML screening

AML screening consists of scanning all the legal entities and individuals connected with the business against any global sanctions, PEP lists, global watchlists, etc.

This screening process works in more than 190 countries. When nothing questionable is found, the company is termed to be green. If otherwise, any suspicious detail would be regarded as potential fraud.

Performing KYB verification for your business

One of the major challenges companies faces while KYB onboarding is meeting the excessive documentation requirements. The KYB process can be burdensome and tedious because of the endless paperwork needed for it.

The procedure usually consists of photocopies of identity proofs, application forms, bank statements, bills, etc. Collecting all these documents and placing them in the right order can take a lot of time and energy.

Along with this, because the KYB process is extremely long, companies tend to either prove inefficient or drop out of the process. Another major problem in the KYB process is the cost of compliance.

This includes procuring documents, making copies, submitting them in person, etc. on top of this, financial institutions take their own long time in KYB verification and this becomes extra stress on the companies in the form of taxes. 

All these challenges can easily be overcome by completing the KYb verification process online, keeping advance due diligence, and being prepared with all required documents well in advance.

Through online KYB all the company's documents are verified in no time and the whole procedure is done within minutes.