Know Your Business – the basis of all anti-fraud frameworks3 min read

Know Your Business, or KYB, is not a new concept – just as banks perform Know Your Customer checks before opening a new account, organisations must complete due diligence checks for new institutional accounts or vendors. This prevents crime on a global level, eliminating loopholes found in new technologies and detecting shell companies and fake businesses.

Lack of commitment to KYB, as well as other related Anti-Money Laundering, or AML, activities can have severe repercussions. Businesses are obligated to maintain compliance in order to protect stakeholder networks, and failure to do so results in hefty fines. For example, Deutsche Bank was fined $16.6 million last year by Frankfurt prosecutors for failing to observe suspicious transactions as a direct result from their poor management of their AML processes. This follows a £163 million fine from the UK’s Financial Conduct Authority, again for inadequate AML oversight. On top of all of the fines, criminal activity associated with a business can prove damaging to an organisation’s credibility and reputation, and can cause other business disruptions.

Therefore, KYB is an essential element of anti-fraud frameworks and requirements, including Anti-Money Laundering regulations. An extension of KYC and regular due diligence, having a proper KYB process within your organisation protects against potential clients and vendors who intend to commit money laundering activities or other financial crimes. By establishing and understanding risk levels during onboarding, organisations can manage potential vulnerabilities and respond effectively to indications of fraud or crime.

On a very basic level, KYB requires organisations to collect standard information about a business, such as its registered address and credentials. Additionally, firms must determine the nature of the client’s business and confirm the Ultimate Beneficial Owners, or UBOs, of the company. Finally, the applicant is checked against a blacklist and general AML examinations are performed on the UBOs.

While KYB should always take place during onboarding, organisations must be diligent in re-affirming the status of their clients to continually ensure regulatory compliance and prevent potential financial crime.

Being a high-risk client business or vendor does not necessarily mean one is automatically turned away from services. However, this does mean that organisations are required to implement Enhanced Due Diligence, or EDD. This is essentially an added layer of information collection for further scrutiny, including additional identification data, authenticating the potential client’s source of funds, investigating the nature of the business transactions requested and continuously monitoring the client for suspicious behaviour.

KYB should always feed into an organisation’s AML (Anti-Money Laundering) processes, and, conversely, any information gained during general AML practices should inform updated KYB questionnaires, monitoring and other actions. Otherwise, information remains siloed and effectively useless.

KYB is the easiest and earliest way to protect your organisation from associating with clients that may have dubious intentions. However, organisations can often be put off by KYB, seeing it as another manual and drawn-out onboarding task, and often not ensuring continuous monitoring. Our integrated risk management platform, CyDesk, streamlines onboarding by presenting one view of all required tasks, including KYB questionnaires. To learn more about how CyDesk can help you with KYB and AML, click here.

This is part of a series of blogs on topics associated with Anti-Money Laundering. Check out our previous piece here.