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KYB – A Casual Consideration or Necessity for SMEs?

The global regulatory ecosystem is constantly changing and has no signs of slowing down anytime soon. Where updates to previous regulations come up, or entirely new regulations take inception. The regulatory world is full of surprises, for the people in AML and KYC Compliance department not so much.  Where the acceptance and management of traditional KYC was already a handful, regulatory guidelines have yet again required necessary changes that take into risk from a much wider perspective. These changes necessitate requirements for the individual as well as business verification – KYB.

The Need for Improved Controls
As the way how firms carry out their businesses changes so does the requirement for their respective due diligence. These diligence requirements are also consequently dependant on the verification requirements provided by regulators. Where earlier, requirements were limited to the identification and verification of individuals. Has now transitioned to include businesses and legal entities. Where risk is identified to be posed not only from individuals but also from companies. Regulations like 4AMLD are the pioneers in mandating stricter controls for customer identification.

Enabling KYB for SMEs
As the risk from customers is as dynamic as their nature of operations. Regulators have subsequently also tightened regulations surrounding Banks, FIs, payment providers and merchants to better vet their customers. Where earlier smaller companies were left with just KYC to perform. As these companies grow and come under the category of SMEs. Their customer profile also varies from individuals to businesses.


As the way how firms carry out their businesses changes so does the requirement for their respective due diligence. These diligence requirements are also consequently dependant on the verification requirements provided by regulators. Where earlier, requirements were limited to the identification and verification of individuals. Has now transitioned to include businesses and legal entities. Where risk is identified to be posed not only from individuals but also from companies. Regulations like 4AMLD are the pioneers in mandating stricter controls for customer identification.

Enabling KYB for SMEs
As the risk from customers is as dynamic as their nature of operations. Regulators have subsequently also tightened regulations surrounding Banks, FIs, payment providers and merchants to better vet their customers. Where earlier smaller companies were left with just KYC to perform. As these companies grow and come under the category of SMEs. Their customer profile also varies from individuals to businesses.

As businesses pose risk to these entities, they require a change to the way how due diligence is performed. Business fraud is one of the largest factors that account to the shift towards KYB. As a fraudulent business customer can lead financial entities into much legal trouble. As the likelihood of such a business performing illicit activities is very high. Thus. SMEs are required to implement KYB by verifying the business and UBO’s they interact with. Where regulations like the 4AMLD require all information regarding, incorporation, ownership companies in a central registry. Through which, the possibility of performing UBO and business verification is mandated, atop the standard KYC compliance procedures.

Before, organizations used to perform diligence checks on businesses manually. Which were laborious and highly time-consuming. Data cross-referencing from multiple sources led to high human error and left a lot of business customers awaiting their verification approval before becoming full-fledged customers.

KYB and the Path Forward
As regulations are changing, technology has caught up with the era and rapidly changing regulatory guidelines. Systems and solutions have become automated and eliminated much of the ordeal that was faced when performing manual checks. KYB is much of requirement now, under most AML compliance regulations. Entities have to verify businesses to ensure their part of compliance. KYB is evolving, and additional requirements of it come under enhanced due diligence requirements of a greater KYC compliance program. Performing KYB not only fulfills their diligence obligations but also secures SMEs in their understanding of customers, which includes if the business they are dealing with legitimately exists.
 

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