Know Your Business (KYB) FinTech & Banking Regulations

Know Your Business (KYB) is the process of verifying business entities during the onboarding process to understand risk factors, financial information, credit, and beneficial ownership.

KYB exists to serve regulated entities in painting a clear picture of their corporate clients to ensure that there is minimal risk when establishing business relationships.

The KYB process involves collecting key information from a business including name, registration number, incorporated date and address, and then verifying this information against data sources to understand how the business is performing financially and understand the ownership structure to verify there is no risk of money laundering or fraud.

To access the information required for comprehensive KYB, businesses seek KYB software which can automatically aggregate the required data from several trusted data sources to improve efficiency and enhance regulatory compliance.

Why is KYB important for banks and FinTechs?

Know Your Business (KYB) checks are essential for banks and FinTech companies when working with corporate clients. Here’s why KYB is so important:

• Regulatory compliance: KYB helps banks and FinTechs comply with Counter Terrorist Financing (CTF) and Anti-Money Laundering (AML) regulations. Regulatory bodies require thorough verification of businesses to prevent illicit activities and verify that the required due diligence has been performed.

• Risk management: Identifying and verifying the businesses banks and FinTechs are working with helps manage risks. KYB checks ensure these institutions are not inadvertently supporting fraudulent activities or high-risk entities.

• Reputation protection: Engaging with unverified or dubious businesses can damage a financial institutions reputation, something that is especially pertinent for banks and FinTechs who rely on reputation heavily. KYB processes help protect against such risks by ensuring that all corporate clients are legitimate and trustworthy.

• Enhanced trust: Particularly important for FinTechs, who don’t have the same legacy of reputation as traditional banks, demonstrating robust KYB processes can enhance credibility and trust among customers and partners. This is crucial in building long-term business relationships.

Know Your Business (KYB) regulation for banks and FinTechs

Banks and FinTechs must adhere to various KYB regulations to ensure they are not only identifying risks but are operating within legal frameworks. Key KYB regulations include:

• Anti-Money Laundering: AML regulations, such as the 6th Anti-Money Laundering Directive (6AMLD) and the USA Patriot Act require financial institutions to verify the identity of their business clients, including directors and key shareholders, to prevent financial crime. This involves understanding the client’s business operations, financial information, and ownership structures.

• Counter-Terrorist Financing: CTF regulations, including the Financial Action Task Force (FATF) recommendations, mandate that banks and FinTechs identify and prevent funding for terrorist activities. This has crossover with AML checks at the point of onboarding including PEPs, sanctions, adverse media, and watchlists, and transaction monitoring of directors to detect any suspicious transactions.

• Customer Due Diligence (CDD): Under regulations such as the Bank Secrecy Act (BSA) in the United States and 6AMLD in the European Union, CDD processes involve assessing the risks associated with business clients by verifying their identities and understanding their financial behaviours. Enhanced Due Diligence (EDD) is applied for higher-risk clients.

• Beneficial ownership: KYB regulations often require banks and FinTechs to verify the Ultimate Beneficial Owners (UBOs) of corporate clients. This can be a complicated process as it can be difficult to identify the UBO, let alone verify their identity, which is why more financial institutions are turning to advanced KYB software to assist this process.

• Data privacy laws: It’s not only important that banks and FinTechs comply with KYB regulations, but that they also ensure that personal and business data is handled securely and responsibly during the process to adhere to GDPR and CCPA data protection regulations.

KYB processes and procedures

KYB in banking and FinTech involves collecting and verifying business information to identify signs of risk or factors that may lead to non-compliance.

In banking and FinTech, it is particularly important to gather a comprehensive report of information about all business clients due to the financial nature of these industries.

To perform a KYB check, firstly banking and FinTech regulations should be considered and understood. Then they must collect identifiable information such as business name, address, date of incorporation, and registration number if possible. By gathering this data initially, it cuts down the amount of time required to find relevant information about the business being screened.

Once the initial information is gathered, banks and FinTechs then have a few options to perform the KYB check:

1. KYB Software

Utilising KYB software, such as FullCircl, can be the most efficient method to performing a KYB check. This method will automatically build a report covering general business information, financial records, credit, beneficial ownership, and company structure.

By utilising KYB software, banks and FinTechs can save hours, and in some cases days, on manually finding out the relevant information required to screen a business. By having access to an automated report which pulls information from multiple data sources, businesses can then make informed decisions on the next steps to take.

This method can also be combined with automated KYC and AML checks to ensure that beneficial owners can be screened effectively against global PEPs, sanctions, adverse media, and watchlist data.

2. Manual screening

A potentially cheaper, but more time-consuming method to performing KYB checks is manual screening.

This will require more human input to gather and verify data from an array of sources to build a report of the business being screened.

Banks and FinTechs can use data sources such as Companies House to extract the information they require and then upload this information into a centralised system. Whilst this method can be more time consuming and less efficient, it does give banks and FinTechs more freedom to research clients themselves.

The method chosen to perform KYB checks is entirely subject to the situation of the business. For example, some banks will have built up compliance teams and in-house systems to make performing KYB manually a better option, whereas for smaller FinTechs or banks that are striving for digital transformation, adopting KYB software might be a more effective choice.

How FullCircl can help

FullCircl works with 700+ businesses including 7 out of the top 10 UK banks and financial services challenger brands such as Soldo and GoHenry to provide a full suite of compliance software.

The FullCircl platform includes access to KYB, KYC, AML, and identity verification solutions in 240+ countries and territories globally and exists to remove the technical and verification roadblocks to drive revenue growth.

FullCircl’s FinTech and banking KYB software includes data feeds from 40+ suppliers in conjunction with proprietary technology to extract a full business report including financial information, credit, and beneficial ownership.

Contact us here for a free demonstration of the platform.