What Is The Importance of KYB and Ultimate Beneficial Ownership (UBO)?

Today’s topic is Know Your Business (KYB) and Ultimate Beneficial Ownership (UBO). We will also understand the need and the importance of KYB – know your business and Ultimate beneficial ownership. 

There are B2C companies that follow various steps to verify their customers’ identities. This is known as the Know your customer (KYC) process.

Other businesses and financial institutes are obligated to do the same verification process for businesses they onboard. This process is also known as Know Your Business (KYB) or Business Risk Assessment. In the past few years, the need for KYB regulation has been changed by the Financial Action Task Force (FATF).

What is Ultimate Beneficial Ownership (UBO)? 

UBO is a beneficiary or a legal entity that is responsible to verify the identity of the customers and ensure that it is not fake. The Ultimate Beneficial Owner also gets the profits for businesses, this is why financial institutions need to identify UBO’s identity. 

UBO verification plays an important step in Know Your business verification and provides relevant information to decide whether FIs should onboard specific businesses. This helps to reduce the chances of various frauds and financial losses. So, you know the importance of Know Your Business. 

When it comes to UBO, the United States FinCEN (Financial Crimes Enforcement Network), the European Union’s 4th and 5th Anti-Money Laundering Directives, and the CDD rule, all are intended to guarantee a better way to assess risks that would be helpful to strengthen the anti-money laundering measures.

What is the Customer Due Diligence Rule? 

The FinCEN Customer Due Diligence rule has four fundamental requirements to ensure the transparency of the financial Institutes and to detect any mishaps related to this: another step that explains the importance of know your business. 

Here are the four key requirements:

  1. The identity of the users and the customers is verified. 
  2. The account of the beneficial owners is verified. 
  3. To verify and identify beneficial owners who own 25% or over 25% of a legal entity. 
  4. Developing a customer risk profile for a better understanding of the customer relationship, customer purpose, and customer nature. 

What is the Importance of Know Your Business (KYB)? 

This process helps various businesses to catch the upcoming risk related to the business and their customers or clients. 

This process also helps the regulated entities and banks to stay compliant with the industry regulations.

When we talk about the importance of Know Your Business (KYB), we are trying to say that it is crucial to identify deterring frauds and to protect businesses from mishaps that can lead to huge financial losses. 

This process includes verification of the documents related to the bank records, incorporation, and the source of wealth. And, various KYB platforms are helpful for the businesses to create records with the UBOs and to get access to the databases. Best KYB platforms also help to perform KYC on the UBOs (as an individual) and the operational workflows, and investigation to track the data. This helps to get access to the information for the brief analysis, relevant parties and reporting by regulators. 

As per the regulatory requirement, maintaining a robust compliance program (with KYB) and using risk mitigation strategies with proper due diligence for UBOs is necessary to prevent your business from nefarious intent and also a regulatory requirement.

How does DIRO Play an Important Role in Know Your Business Process? 

It is crucial for business and financial institutes to maintain the integrity of their organization, firm, or institute without neglecting the compliance regulations. This also includes managing and detecting the risk related to the businesses and financial institutes. 

DIRO online document verification technology can play a vital role to reduce the load of the verification process in KYB, and UBO verification processes. This is crucial to avoid identity theft and various other financial threats.

DIRO document verification technology provides a quick way to verify incorporation documents, bank accounts, business documents, utility bills, credit bureau reports, tax returns, etc.

DIRO also helps to ease the KYB compliance process with the real-time document verification solution. We as DIRO also assist with UBO identification and shareholder information.


Steps to Streamline KYB Process

To ensure the success of a business and the elimination of fraud, effective KYB measures need to be established throughout the organization. The Know Your Business (KYB) process begins with the onboarding of corporate clients and since the pandemic, the integration of digital solutions has become a vital step for KYB compliance.

Regardless of the usefulness of digital services in keeping up with regulations, businesses operating in the financial industry are reluctant to rely on technologies. Countless studies point toward the fact that focusing on a solely paper-based process for onboarding clients hurts businesses in the long run. Regulatory bodies all over the globe are encouraging businesses to take the first step toward digital transformation.

While digital transformation isn’t easy to achieve, with the integration of DIRO’s online document verification software, the process can become faster, efficient, and seamless. With DIRO, it can be easy to comply with regulations, perform due diligence checks and reduce friction from the customer onboarding.

What is Know Your Business Regulation?

KYB is the pass or fails point of a new relationship with a corporate client. KYB compliance came into existence because of some loopholes in the older KYC (Know Your Customer) compliance. With KYB, businesses can verify the clientele and figure out the risk factors in the initial stages of a relationship. The KYB regulation covers all the legal and regulatory processes when onboarding a new client. 

Usually, there are 4 main steps of KYB verification:

  • Document collection and verification
  • Data assessment
  • Continuous monitoring
  • Reporting and intelligence

Companies need to do their due diligence to figure out any criminal activity like money laundering and terrorist funding. It is vital to understand that KYB is not a one-time audit but an ongoing process that requires continuous monitoring to verify that everything is squeaky clean.

3 Ways Traditional KYB Hurts Your Business

  • Traditional KYB methods require tons of resources, financial institutions need to have a dedicated team who are slowed down by outdated processes. In most cases, corporate clients can take months to successfully onboard. 
  • Human error is part of business operations and when handling huge amounts of data and information, mistakes happen, exposing businesses to major risks. 
  • The biggest challenge of the KYB process is keeping up with the ever-changing regulatory landscape, especially when numerous countries are involved. The rules and regulations of the KYB process are complicated and ever-changing. Top banks can also have some blunders, which can lead to reputational damages.

How to Streamline the KYB Process During Corporate Onboarding?

Technology is ever-evolving and with the help of the right technologies, you can help future-proof your business. The need for KYB regulation is growing, not just because of the regulatory requirement, but because the ability to onboard clients is essential.

The traditional KYB processes can be improved through numerous automated verifications, AI, and data assessment. All of it can be done faster than a person ever could. Automations allow companies to react quickly and work in accordance to enforce compliance procedures without having to spend more on their teams. 

This, in turn, helps in delivering an experience to the onboarding that is more secure, convenient, and sustainable. According to a recent report, companies that achieved successful KYB compliance save an average of $1.45 million per year in compliance costs. 

Building an in-house KYB digital onboarding system from nothing is super expensive, time-consuming and there’s a lot of room for error. With the integration of DIRO online document verification software, businesses can effectively comply with KYB regulations and mitigate the risk of financial fraud.


Simplifying the KYB Process for Faster Client Onboarding

As fraud continues to rise, the regulations around the world keep evolving to keep up with the constant threat. Several of these regulatory changes require companies, financial institutions, and others to verify businesses and Ultimate Beneficial Owners (UBOs) that they interact with on a daily basis. The process of verifying business identities and UBOs is known as Know Your Business (KYB). 

KYB verification requirements create additional pressures for financial institutions and other regulated businesses such as:

  • Have to comply with AML laws and regulations, including the “Corporate Transparency Act” in the U.S or AMLD5 in the EU.
  • Spending additional monetary resources to protect customer data and privacy.
  • Controlling additional expenditure for regulation compliance. 
  • Trying to make the process smooth and friction-proof to increase positive customer experience. 

Entities that have to verify businesses and UBOs require enhanced due diligence (EDD). To perform EDD, an organization has to collect additional information about a business client. This additional data can consist of:

  • Nature of business relationship
  • Identifying the source of incoming funds
  • Enhanced monitoring of transactions
  • Monitoring and reporting suspicious activities

Enhanced Due Diligence helps businesses figure out if their client is real or not and it also helps in identifying stakeholders and UBOs that aren’t possible with KYC verification. To ensure complete compliance and avoid future fraud risks, KYC and watchlist checks have to be done on UBOs to verify their identities. It is always a good idea to identify the people who control a business, this can help in building an accurate customer risk profile.

Ineffective KYB: What Does it Cost?

Before the COVID-19 pandemic, almost all the banks performed due diligence on businesses using a paper-based process. Team members conducted individual searches on numerous lists and then analyze the data collected about an entity. Analyzing small businesses and merchants is an even tougher task as their history is almost non-existent. Manual KYC/KYB/CDD processes are onerous, ineffective, and expensive and also leave a lot of room for human errors. Thus, conducting accurate CDD is almost impossible and fraudsters can easily slip by.

A study conducted by Thomson Reuters showed that out of 430 AML compliance leaders of Financial Institutions, 58% claimed that the inability to access UBO data was the biggest challenge. According to the same study, the average annual global cost for conducting CDD and KYB is almost $48 million ranging all the way to $70 million. 

Not only that, but the cost of onboarding clients is also increasing due to ever-changing compliance rules. On the other hand, corporates have claimed that FIs have made inconsistent requests, access to data that was a security concern, and so on. These barriers result in poor customer experience and an increased customer drop-off rate. 

On average, it takes 3-4 months to onboard a corporate banking customer. The huge time window leads to application abandonment and the increased friction caused the global commercial and business banking market to lose $3.3 trillion.

Integrating Technologies in KYB Process

Needless to say, that future will bring a series of brand new challenges for entities trying to comply with regulations. The only solution is to leverage automation and technological solutions to cut back on costs, enhance the process and detect and prevent fraud. Our solution, “DIRO online document verification software” can assist businesses and FIs to keep up with KYC/AML and CDD requirements.

DIRO eliminates the need for manual document verification by instantly verifying online documents required for KYC/KYB/AML compliance. Banks and Financial institutions can integrate DIRO’s online document verification software into their workflow and significantly reduce the 3-4 month onboarding time frame. 

Businesses have to adapt to today’s environment and customer requirements. Customers need instant access to products and services without having to stand in lines for hours. With DIRO’s online document verification API, companies can onboard customers quickly, and efficiently, while ensuring the standard of security is maintained. 

DIRO can verify over 7000 document types from all over the globe and also provides stronger proof of verification for verified documents. It 100% eliminates the use of fake and stolen documents, thus eliminating the chances of fraud during the customer onboarding process. 

With the integration of technologies like DIRO’s online document verification tool in the KYB process, organizations can leave the outdated processes in the past. Organizations can easily provide a smoother customer onboarding process while 100% complying with the regulations.

Fintech KYC/KYB

FinTech 2022 – A Brief Insight into Global KYC Regulations

Financial services globally are heavily regulated by regulated bodies. The number one concern of the government about FinTech companies is the growing rate of fraud. Over the years, FinTechs have achieved incredible growth and flexibility. They can launch new services quickly, focus on scalability and adapt fast. Although, the rapid growth of FinTechs doesn’t come without its challenges. As technology is added into the finance sector, regulatory bodies have implemented stricter regulations. Let’s take a look at what these regulatory challenges are for the present state of FinTechs.

Major KYC/AML Regulations for FinTechs in 2022

In many regions, the FinTech sector was unregulated a couple of years ago and became the ground zero for scams and frauds. Because the FinTech industry is so vast, it impacts several industries and the authorities can’t develop a single approach to the problems. 

For many areas, governments worldwide have updated the existing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Some regulatory bodies have implemented FATF’s risk-based approach to tackle fraud. However, FinTechs are affected in numerous ways, so an industry-specific customer due diligence (CDD) approach is vital.

United States Regulations

FinTechs in the US isn’t regulated by any particular regulation. However, the firms are subjected to the federal and state laws for registration, ID verification, and background screening is vital. The first fighter of fraud against the country “FinCEN” has issued a number of AML/CFT policies for FinTechs. The country’s FinTech companies have to perform customer due diligence during onboarding and submit Suspicious Activity Reports (SARs) to the regulatory body. 

United Kingdom Regulations

Just like the US, the United Kingdom doesn’t have any regulatory framework for FinTechs. However, any FinTech that offers traditional financial services, such as banking has to comply with the FinTechs set by regulatory authorities. If a FinTech wants to operate in the UK, they have to get authorization from one of the UK’s financial regulators – the FCA (Financial Conduct Authority) or PRA (Prudential Regulation Authority).

EU’s Anti-Money Laundering Directive

The latest AML Directive (AMLD6) has a more profound impact on different sectors of the FinTech industry. From cryptocurrencies to wallet providers, AMD 6 has a far better influence and impact on fraud prevention across industries. 

  1. Cryptocurrencies

Any platform that offers cryptocurrencies will have to go under tougher regulatory controls. All virtual currency exchanges have to register with the relevant authority, conduct necessary CDD protocols and submit suspicious activity reports (SARs). Financial intelligence units (FIUs) have to maintain customer records with the name and address of the customer buying and selling digital currency. 

  1. Prepaid Cards

According to the new AML directive, the limit for the prepaid card has been set between €150 to €250 and there’s a limit of €50 for online transactions. Additionally, cards are only allowed in the region unless a foreign provider meets the AML standards. Payments can only be accepted if the jurisdiction meets the AML standards.

  1. Beneficial Ownership

AMLD6 now requires all businesses to maintain publicly available and interconnected ultimate beneficial ownership (UBO) registries. National authorities will have access to these registries for trusts and bank accounts. 

  1. High-Value Goods

High-value goods have been a part of money laundering activities for a long time. The use of high-value goods is now subject to new reporting requirements with updated thresholds. These goods include art, precious metals, artifacts, tobacco, and other items.

What FinTechs Can Do for Effective Compliance?

The FinTech industry is highly diverse and every sector has to re-evaluate and reform their customer due diligence programs according to the updated regulations. As a part of the FinTech industry you need to consider a few questions:

  • Are you complying with the country’s KYC/AML laws that you are serving in?
  • What customer due diligence protocols are you following as a business?
  • Is your customer screening process effective or is your drop-off increasing?
  • Is your customer due diligence process equally effective worldwide?

Maintaining Security in Financial Institutions: How Essential is KYC?

The 9/11 attack on American soil shook the nation to its core, and the perpetrators used The Hudson United Bank of New Jersey to fund this attack. According to the 9/11 commission, proper money-laundering safeguards within the financial industry at the time weren’t designed to detect or disrupt the type of deposits, withdrawals, and wire transfers that helped the attackers to commit the crime. After the attack of 9/11 KYC laws were introduced as a part of the Patriotic Act as a means of preventing financial activity and crime.

Why is KYC Implemented for Banking Institutions?

Know Your Customer (KYC) laws were introduced as part of the Patriot Act as a means of preventing terrorism financing and financial crime such as money laundering. As criminals use fake or stolen identities to commit financial fraud, banking institutions have to find a way to distinguish between fake and legit customers. That’s what KYC policies help achieve, the policies require financial institutions to conduct a series of tests to get to know their customers. This should help financial institutions to understand if the customers are who they say they are. 

This makes KYC and Customer Identification Procedure (CIP) vital for banking and with more and more banks supporting online customer onboarding, KYC is becoming even more crucial. Banks, financial institutions, and other businesses need to find technologies that can streamline the customer onboarding and KYC procedure and eliminate the risk of fraudsters getting access to financial systems.

Why is KYC Compliance Mandatory?

For decades, the United States Department of Treasury has had legislation guiding financial institutions on detection and prevention of money laundering. The BSA (Bank Secrecy Act) of 1970 requires financial institutions to maintain specific records like cash transactions exceeding $10,000 and also report suspicious transactions that they think could be linked to money laundering, tax evasion, or any other criminal activities. 

Recently in 2016, the regulatory body ‘FinCEN’ issued new rules that outlined how to strengthen the customer due diligence and Anti-Money Laundering strategies. This also requires financial institutions to perform due diligence so they can better understand who their customers are and what kind of transactions they conduct. Any transactions from their ordinary transaction habits can be marked as a red flag. 

To successfully comply with KYC regulations, banks all over the globe spent over $100 billion in 2016 and the cost has since risen by 10% in 2021. Regardless of the growing cost of compliance and huge investments, over $26 billion were imposed as fines in the last decade to financial institutions for non-compliance with KYC and AML laws.

Common KYC Procedure of Financial Institutions

To make the CDD (Customer Due Diligence) process more robust and meet the KYC requirements, FinCEN outlined 4 basic elements for an effective KYC procedure. The 4 elements are:

  • Identifying and authenticating the identity of customers
  • Identifying and authenticating the identity of beneficial owners of legal entity customers (Ultimate beneficial owners).
  • Understanding customer nature and purpose of customer relationship for building a risk profile.
  • Transaction monitoring, monitoring, and updating customer information based on customer risk profile. 

What do Customers Have to Provide During Onboarding?

To keep with the regulations, financial institutions have to collect and authenticate identity information while onboarding new customers. Different financial institutions have different requirements when it comes to identity information. 

Individual customers who visit the bank for account opening will bring some ID documents (driver’s license, passport, etc), proof of address document, and any other document that is required. The banker then authenticates the documents to verify that the customers are who they claim to be. For onboarding businesses, banks ask for additional information to verify the identity of beneficial owners. Most financial institutions also require a profit and loss statement from businesses.

Opening a new account online significantly toughens the process as banks have to verify digital documents like driver’s license, proof of address documents, and others. Building a trustworthy link between a digital ID and an actual person requires a strong customer ID verification process to eliminate fraudsters from the customer onboarding process. This verification process may include biometrics verification, facial recognition, online document verification, and machine learning technologies for verification.

Use of Technologies for KYC Verification

Companies all over the world are using biometrics verification, manual verification, and online document verification software to comply with KYC regulations, prevent online fraud, and provide a better customer experience for customers.

The technologies can be used to enhance trust among customers and also create a seamless onboarding experience.


Enhanced Due Diligence: How Important is it for Banks?

In today’s business and regulatory climate, a business has to take all precautionary steps to prevent fraud. This means identifying and verifying customer’s identities and meeting KYC guidelines. Whenever a financial institution starts a new business partnership with individuals or organizations without fully knowing their past and present business dealings, it can open the business to huge lawsuits and fines. EDD (Enhanced Due Diligence) can help businesses understand their customers.

As a matter of fact, over the last decade over $26 billion in fines have been imposed across the U.S., Europe, APAC, and the Middle East against financial institutions for KYC/AML. But KYC compliance goes beyond ticking some checkboxes. KYC helps financial institutions understand and serve their customers in a better way.

The KYC process is often carried out by financial institutions while opening new accounts with online users. Customer Due Diligence (CDD) is a vital part of KYC verification, which usually involves background checks to assess the risk they pose to a business. In the financial sector, this usually involves verifying the users for creditworthiness and ensuring that these people aren’t on a money laundering or counter terrorism financing watchlist.

Fortunately, most of these verifications and AML verification processes are becoming automated so businesses can offer a better customer experience during onboarding. With Customer Due Diligence (CDD) financial institutions perform important checks.

What is Enhanced Due Diligence?

(EDD) Enhanced Due Diligence is part of the KYC verification process that offers a greater level of scrutiny of potential business partnerships and highlights risks that can’t be detected by customer due diligence. Enhanced due diligence requirements are an upgraded version of CDD that looks to establish a better level of identity verification by using customer ID data and evaluating the risk category of the customer.

EDD is specifically designed for dealing with high-risk customers and large transactions. These customers and the transactions they conduct pose greater risks to the financial sector, these customers and transactions are continuously monitored to ensure that nothing is out of place. 

There are several characteristics that EDD from regular KYC policies:

  • Rigorous & Robust: EDD policies have to be rigorous and more robust and should require more data for customer authentication.
  • Detailed Documentation: The EDD process has to be documented in detail, and regulators should be able to have immediate access to enhanced due diligence reports.
  • Reasonable Assurance: EDD requirements require “reasonable assurance” while building a risk profile. 
  • Going Through PEPs: Banks and financial institutions need to pay attention to Politically Exposed Persons (PEPs) lists. People on these lists are viewed as being a higher risk because they are in positions that can be exploited for money laundering. 

Another major challenge with EDD is knowing how much information is there to collect. Regulators have consistently favored financial institutions that leverage documented policies & procedures.

More and more companies are combining online identity verification and automated AML screening during the account onboarding process.

Enhanced Due Diligence Checklist

So, what do banks and financial institutions get out of using EDD as part of their KYC verification process? Here’s the Enhanced due diligence checklist:

1. Better Serve Your Customers

The EDD and identity verification process offer a bunch of useful information regarding your customers, including employment status, age, and so on. This data can be used to provide customers with better services. 

2. Enhance Brand Reputation

Whenever a bank, financial institution onboards a new customer with EDD, they can help in the prevention of corrupt politicians, criminals, and terrorists from entering the ecosystem. This also means that taking the precautions to know your customer at a more fundamental level.

Businesses need to build robust safeguards that help in defending against losses for fraud, non-compliance fines, and loss of brand reputation.

3. Financial Crime Prevention

All the ideas of knowing your customers, verifying identities, making sure they’re real, and cross-referencing customers from PEPs and Sanction lists. Enhanced due diligence and other fraud prevention methods such as bank account verification software allow businesses to focus on scaling their businesses instead.

4. Build Trust

Unfortunately, as more and more cases of data breaches, money laundering, and financial fraud are being uncovered, customers are losing trust in the banking sector. It is high time for banks, financial institutions, payment providers, and others to stop the flow of money laundering and other financial crimes. 

This can happen by integrating identity verification and identity screening technologies into the KYC workflow. With a secure digital-first approach, it is possible for banks to digitally onboard customers from all over the world while ensuring security and enhanced positive customer experience.


How to Prevent Fraud in KYC/AML for Online Business?

Due to the digitization of the world, the interactions between businesses and consumers are on the rise. As businesses are switching to digital methods of transactions, commerce is becoming global instead of sticking to one particular region. With the rise of digital services, the problem of document verification and how to build trust among your brand and customers also increase. If your business is online, then you will need to learn how to prevent your business from online identity theft. 

According to the global fraud index, the number of frauds is on a constant rise. In the last 12 months, more than 60% of businesses have experienced some kind of fraud or an increase in fraudulent activities. This sudden growth in fraud-related activities calls for swift and secure document verification processes. As a business, you must learn how to protect your business from online fraud in KYC/AML. 

Using the best document verification technology, you can satisfy internal compliance and AML teams, and regulators with a verifiable audit trail of the original source of documents. Almost 80% of businesses that operate on digital models have shown a lot of interest in acquiring greater security measures and using them for document verification processes. Here are our tips for online KYC verification.

How to Prevent Business from Online Identity Theft During Document Verification?

As a business, what kind of investments have you put in place to manage your risks against document fraud while keeping in mind compliance with KYC and AML. If you know that your business is weak in this particular area, then you should make use of the following KYC tips. You should be aware of the main areas you need to focus on to prevent fraud and stolen documents in KYC & AML. Here’s how to do online KYC securely:

1. Make Sure All Your Payment Methods are Secure

It doesn’t matter if your business uses Paypal Credit Cards or any other form of online payment, you need to be aware of all the policies that can affect your business adversely. If you want to start preventing businesses from online identity theft, then you should pay attention to payment method policies. 

As a business, it is good practice to familiarize yourself with all the necessary security measures and apply them to your business. Following up with that can be incredibly beneficial for your business and it can help you protect yourself from document fraud. It is one of the best tips for online KYC verification.

2. Protect Yourself Against Chargebacks

Chargebacks are huge issues for businesses that operate completely online. They happen when a customer reaches out to their bank to claim that a payment hasn’t been authorized properly. 

Different banks, credit cards, and even PayPal have different policies for handling chargebacks, we suggest that you look up these policies so you know what to do to protect yourself. 

In terms of preventing and winning cases for chargebacks, you need to make sure you always have tracking. If you sell physical products then tracking lets you prove the suitable delivery of goods and signature on receipts. This step will help you in preventing businesses from online identity theft.

3. Use Common KYC Practices to Fight Fraud

If you’re wondering how to do online KYC securely, you need to follow the most common KYC practices to fight document fraud. 

  • Verify email addresses.
  • Verify telephone numbers (by sending an OTP via SMS).
  • Check public records while you’re dealing with businesses or individuals (for verifying addresses and other details).
  • Validate any document with the issuing bodies.
  • Ask specific questions that only the customer or the business you’re dealing with would know about. 
  • Try doing the whole KYC procedure on video. Which is also known as the video KYC process. 

Follow these KYC tips for online business, to make sure your business doesn’t get hurt. All of these KYC tests are simple and very easy to implement and all of them are great ways of preventing document and identity fraud. 

4. Use a 3-D Secure System

A 3-D secure system was introduced and adopted by major credit card companies way back in 2010. It’s a secure system that was designed to authenticate at three different levels. Preventing businesses from online identity theft is one of the main purposes of a 3-D secure system.

A 3-D secure system verifies information on the bank and the business of the sender and the information on the bank of the receiver. You can deploy the 3-D secure system as an extra layer of security so you can prevent yourself from document fraud. Using this, the information that is exchanged via intermediary companies can be used to process a transaction that can also be used for verification purposes. 

5. Use AVS Response Codes

Address verification service or AVS has a specific code that can be used to confirm a user or customer’s address. This whole process depends on cross-referencing, the address that a customer has provided is cross-checked with the address provided to a credit card company. Using AVS response codes is a well-known document fraud prevention method in KYC. It can even help a business decide whether they want to go forward with a transaction or not. 

6. Use a Third-Party Document Verification Software

Most businesses that rely heavily on an online business model have shown an increased need for security measures. As a business, you can outsource your document authentication process to a third party that can be affordable. 

Security expectations and requirements for solutions differ greatly based on the type of business. If you want to decrease the fraud levels of your company, there are several things that you can do to achieve that. 

There are a lot of companies out there that offer a manual document verification process for KYC and other things. Others use software solutions for document verification. 

This is where DIRO’s world-class document verification technology comes in. Using their software solution, you can authenticate documents like bank statements, certificates, and other documents anywhere in the world using a single click. This process is secure and can suit the needs of banks, payment services, lending, mortgages, and FinTech businesses. This is one of the greatest tips for online KYC verification, as using a third-party document verification service can be extremely beneficial to your business operations. 

7. Reassure Your Customers that Your Website is Secure

According to reports, the rise in fraud is directly related to weak website security. A website that has weak security measures doesn’t look well in front of your customers. Awareness about identity theft is growing and your customers need to rest assured that you are taking preventive methods to reduce that. 

Lack of visible security is basically a welcome sign for fraudsters. If you can put measures to secure your website then you are assuring your customers while reducing the risk of identity and document fraud. 

Doing this the right way can be a tough thing as you would have to change a lot of things. While doing that, you also need to keep in mind not to add too many layers of security which can increase the risk of customers switching to other businesses. You can’t learn how to protect your business from online fraud if you don’t follow the right online KYC practices.

How DIRO can Save Businesses with Groundbreaking Technology in KYC?

As we mentioned above, the number of online frauds is on a constant rise. Preventing business from online identity theft can be a huge task if you don’t have a solid plan. If you are seeking compliance during the KYC process, you need to make use of DIRO’s award-winning technology. Using DIRO’s software solution, you can verify any document online with automated user consent. The verification happens using a secure browser and you can get results in under 30 seconds. Businesses can make completely authentic documents with a few simple clicks.

Blockchain KYC/KYB

Blockchain Technology for KYC Verification

Blockchain is a good solution for KYC verification, not a lot of people would agree with it but using blockchain for KYC is a crucial step in ensuring secure and fast compliance. With the pandemic changing industry standards, KYC automation stands to revolutionize payments, customer onboarding, and so on. It only makes sense to use the most secure technology, “blockchain,” for KYC compliance. 

Blockchain is a decentralized ledger that can help financial institutions, banks, merchants, and so on to streamline the KYC verification process. Here’s why you should use blockchain technology for KYC verification. 

Current Landscape of KYC Industry

It is easy for banks and financial institutions to authenticate customer identities using government-issued ID documents including driver’s licenses, social security numbers, passports, etc. However, the biggest challenge lies in establishing the authentication of other ID sources. Having inefficient KYC verification solutions also leads to an increased rate of financial fraud such as money laundering. 

Regardless of the use case, verifying customer identities using Know Your Customer or KYC verification, is a long and monotonous process. Apart from a huge amount of paperwork, a lack of transparency in the procedure of the use of personal data collected from customers has led to a lack of trust in the process. 

Regulatory bodies all over the world are trying their best to combat financial terrorism and money laundering, which is a highly expensive process. According to reports, firms all over the globe spend over $10 billion on AML compliance annually. 

This volatile environment, with complexity and uncertainty, is the current landscape of KYC compliance. Blockchain KYC verification is a way to fix the problem of less trust and inefficient policies. 

Changes in KYC Environment- Integration of Blockchain

For decades, financial institutions and regulatory bodies have been trying to find viable solutions for KYC and identity verification. Fortunately, blockchain technology came out as a solution.

Blockchain’s role in KYC verification is simple and elegant. As a decentralized ledger technology, blockchain technology will allow for the collection and storage of data from multiple governments and private data portals into a single immutable, secure database. Complying with KYC regulations and authenticating customer identities using blockchain technologies can be faster, easier, safer, and cost-saving than the traditional verification process.

How Can Blockchain Help with KYC Verification?

In the upcoming time, blockchain-based technologies will help bring down cost savings in an industry that utilizes ID verification. Let’s dive deeper into the benefits of blockchain technology for KYC verification:

1. Distributed User Data Collection

A KYC verification system based on blockchain technology will aid financial institutions in enhancing the ID verification process. This is because currently the data is collected and sorted with a centralized system. Access to this data requires KYC providers to share their customer data with companies needing access to it.

With the integration of a blockchain solution to handle the KYC process, customer data for verification is available on a decentralized network and then can be accessed by third parties directly after permission has been given.

2. Centralization of Controls and Risks

By limiting human interference in the KYC and customer verification process, it is easy for FIs to reduce the risk of fraud to a certain extent. This can happen by achieving standardization within the industry overnight. Blockchain allows key regulator concerns to be solved, such as automating the AML customer risk rating process.

Blockchain-based KYC and AML systems have the potential to change industry tides and how banks and financial institutions tackle identity and onboarding.

3. Communication and Transparency

One of the biggest problems with the present KYC landscape is the lack of transparency between customers and businesses. Blockchain will facilitate active monitoring of customers from onboarding till the end of the business-customer relationship.

The immutable nature of blockchain is vital in building trust between all the parties involved in the KYC process. The ability to trust data stored on KYC blockchain software solutions removes the need for secondary validation processes or cross-checking.

Finally, a distributed ledger system makes the reporting and communication processes more efficient, thus saving time and money. Since involved parties can access reliable data, processes, mistakes, and fraud can be detected much more easily.

4. Suspicious Activity Reporting

Currently, doing verification checks during customer onboarding takes weeks at a time, this proves to be extremely expensive for businesses, and staying compliant becomes tougher with the growing costs. 

With a shared ledger, where the data can be managed and accessed by all involved parties, the process of KYC could be easily monitored. Any change to the data of a user will be accessible by all parties, so it is next to impossible to conduct data fraud. Having instant access to a shared ledger will help institutions save time during fraud detection and reporting. 

5. Comprehensive Authentication Process

A decentralized verification technology will help financial institutions quickly verify if a person is who he/she claims to be. This is vital for fraud prevention and compliance with KYC & AML regulations. 

The level of security and trust offered by Blockchain technology reduces the risk of fraud in certain scenarios. It may be possible for fraudsters to get access to sensitive data if a customer’s device is stolen, but they won’t be able to change any data on the blockchain, which leads to fraud prevention. Blockchain KYC verification solutions can change the workflow of the banking industry drastically due to their immutability and increased level of customer satisfaction.


What Is The Complete KYC Procedure For Merchant Onboarding Process?

Finishing the merchant onboarding process comes with its fair share of risks such as fraud, excessive chargebacks, and money laundering. To save businesses from this series of frauds, regulatory guidelines and rules are set in place to reduce the risk of fraud. Know Your Customer or KYC is a set of due diligence rules that has to be complied with by organizations to mitigate their chances of getting scammed. Few KYC requirements for merchants have to be followed for a more seamless process. 

Merchant onboarding requires carrying out a lot of due diligence checks for merchants which need to prior to onboarding, and the checks need to continue until the end of a relationship with an organization. Each financial organization may have different step-by-step KYC procedure compliance according to their needs, but the core of it remains the same. KYC compliance is crucial to mitigate risks. 

What is KYC?

Regulated financial organizations such as Banks, Payment aggregators, and investment companies conduct KYC every time a new customer tries to open an account with them. A new client can be an individual, an organization, or a legal entity, the primary focus, and aim of KYC compliance are to verify a customer’s identity, address, and other key factors, they do this verification using a set of documents. 

Combining this verification with other required due diligence checks improves the chances of identifying potential threats before they end up becoming bigger trouble. More than often, non-regulated entities like online markets, etc have to follow up with KYC compliance as a precaution. Following up with the KYC compliance allows banks, financial institutions, and FinTechs to secure themselves, customer information, and the entire system from attackers. Merchant KYC helps businesses to stay away from merchant-related fraud. 

Step-by-Step KYC Procedure

1. KYC Document Check or CDD Process

The foremost step in merchant onboarding KYC is a document check or Customer Due Diligence check, also known as the CDD process. It can be done using either an individual KYC form or a Business KYC form:

  • Individual KYC: If you are a merchant who is an individual, then the organizations will complete an individual KYC or CDD process. Businesses verify your identity using any “officially valid document”, if necessary, the process may require proof of current residence, utility bills, etc. Traditionally, the verification of documents was carried out using human resources, new technologies like DIRO’s document verification have digitized the process and reduced the risk of human error.
  • Business KYC: Whenever a business partners with another business, the business KYC process is conducted. One of the major differences is that the identity check is replaced with an “entity check”. This process differs based on the type of entity a business is. If the businesses partnering with each other are under a trust/partnership, then a trust/partnership deed will be needed. Businesses also conduct UBO checks during the KYC compliance. It is crucial to verify who has the actual ownership of the business, such as the directors, and shareholders,. A separate KYC process can be done for the UBO’s as well.

 2. Verification Against PEP Lists

The next step in the KYC requirement for merchants is to verify the name of onboarding customers, and beneficial owners against specific lists. Lists like the national and international terrorist lists or politically exposed person’s lists. If any of the names match a name that can be a national threat, then businesses need to report them to their respective regulatory bodies. In the USA, the KYC regulatory body is “Financial Crimes Enforcement Network (FinCEN)” 

Apart from that, businesses usually verify these names on blacklists, greylists. Banks, the Office of Foreign Assets Control, etc issue these lists. These lists help the organization fight terrorism and money laundering and reduce the chances of partnering with entities that can end up at a risk. 

3. Onboarding Policies and Merchant Screening

The next step is to do a background check, most organizations build an internal merchant onboarding policy for this step. The aim of conducting a background check is to verify the nature, purpose, and bona fides of a prospective client’s business.

Background research and merchant screening include running a series of tests such as licensing and registration checks, and credit checks. Combining that with verifying publicly available information such as business listings, reviews, and other activities can offer a better idea of how the merchant works. This background check and screening allows for reduced risks. 

4. Ongoing Due Diligence

After onboarding, businesses need to do constant due diligence checks to monitor any changes in merchant behavior. A change in website details or contact information change can be a hint of fraud. If there are a lot of red flags, businesses can review merchant profiles and conduct due diligence checks. Ongoing due diligence checks are crucial for a complete KYC process for merchant onboarding.

5. Transaction Monitoring

One of the most crucial checks after merchant onboarding is to verify the transaction, monitoring transactions can lead to figuring out red flags. Let’s say that a merchant exceeds the maximum permitted transaction limit, and shows an unusual refund pattern then these can be red flags. In case of any suspicious activities that look like money laundering or transactions that exceed the predetermined limit, businesses need to report these red flags to their regulatory bodies. 

6. Record Keeping

The next step in merchant KYC procedure is to maintain records of all the merchant transactions and ID documents collected in the last 5 years. Keeping records is vital, as they have to be presented to authorities upon request. There are regulatory bodies that ensure the effective implementation of rules and regulations by a business. 

7. Periodic Updates

The last but not the least step is to update both merchant risk profiles and KYC profiles at regular intervals. Ongoing due diligence checks assist organizations in improving their chances against financial crimes such as terrorist funding and money laundering. It is a key KYC requirement for merchants businesses are dealing with to keep updating the risk profile. 

DIRO’s Role in Streamlining KYC Procedure

Collecting, verifying, and maintaining records is just one trouble of KYC compliance. Banks and financial institutions spend countless resources to keep up with KYC compliance and mitigate the risks of financial fraud. 

Unfortunately, traditional methods are failing slowly with the rise of sophisticated methods used by criminals to find the weak point in bank systems. DIRO’s online document verification technology is made to eliminate this issue and improve the overall KYC/AML compliance. 

DIRO’s award-winning online document verification technology captures and verifies information right from the original web source. The technology helps check online documents instantly and reduces friction during customer onboarding. It offers 100% proof of authenticity for verified information. Utilizing DIRO’s document verification technology, organizations can improve their KYC compliance and onboarding process. 


KYC & AML Guide for Crypto Businesses

Money laundering is a huge threat to the global economy and unfortunately, cryptocurrency has become the magnet for fraudsters looking to launder money with minimal friction. Ever since it started growing, the crypto industry has become holy ground for money laundering and terrorist funding.

To disrupt the flow of money laundering and terrorist funding, regulatory bodies all over the world are implementing anti-money laundering measures. These measures can help prevent money laundering using cryptocurrency exchanges and wallets.

Robust internal AML programs include full-proof KYC procedures to identify and verify users. Using this, authorities have to root out suspicious activities in the crypto industry. This will also lead to more expensive customer onboarding for customers in the crypto industries and make the process full of friction. Manual verification processes won’t work for the crypto industry that is slowly getting regulated.

Fortunately for the crypto industry, there are thousands of FinTechs that can help achieve compliance while still offering a positive customer experience.

Importance of KYC & AML Regulations in Crypto Industry

Over time, the financial industry is evolving and cryptocurrencies are rapidly changing the way transactions take place. For international monetary exchanges, virtual currency is taking the place of traditional currency.

However, this comes with its fair share of challenges, a major issue is that criminals launder money using anonymous crypto exchanges. The fifth anti-money laundering directive makes it clear that crypto exchanges and wallets have to operate under anti-money laundering regulations.

This means a robust AML program helps identify and protect against suspicious activities. Crypto exchanges and wallets need to integrate KYC & AML regulations in the onboarding workflow to protect against financial crime.

Currently, most crypto exchanges don’t have proper AML strategies. A recent study states that 69% of crypto exchanges don’t have a complete and transparent KYC procedure in place.

Understanding AML Regulation

The term anti-money laundering or AML dictates a set of rules and legal regulations that are built to identify fraudsters and prevent illegal activities. It includes activities such as trading illegal goods, tax evasion, drug, and human trafficking, and laundering ill-gotten funds. 

To prevent money laundering and other financial fraud, regulatory bodies make it a legal obligation for banks and the financial industry to conduct due diligence checks while onboarding customers. The unregulated nature of the crypto industry has given birth to a whole new type of financial crime, where criminals can launder money and cover their tracks.

This is a huge issue on cryptocurrency gambling websites, money laundering crypto mixer platforms, and exchanges.

How Does KYC & AML Affect Crypto Exchanges?

For businesses operating in the crypto exchange, AML programs are a must, for protection against fraud and to stay compliant with growing regulations. This means the implementation of an effective AML program that includes a customer Acceptance Policy (CAP), Customer Identification Program (CIP), continuous monitoring, and risk management. 

The CAP refers to the identification of new customers using official ID documentation. CIP is the process of verifying a customer from this documentation and against official databases. Ongoing monitoring allows crypto exchanges to identify suspicious transactions and ensure customer details aren’t outdated. 

In the USA, FinCEN puts all types of crypto exchanges the same way. This means that all cryptocurrency exchanges must carry out all KYC and implement effective AML programs, regardless of the type of cryptocurrency. 

Why is KYC Important for Crypto Exchanges?

Money laundering has become a global issue and the losses incurred to the global economy due to money laundering equal almost 5% of the global GDP. These procedures help financial institutions to mitigate and manage fraud. So how is KYC useful for crypto exchanges?

  1. KYC Builds Trust and Transparency

For cryptocurrencies to become a streamlined service, there need to be some regulations set in place to eliminate fraud. By implementing KYC procedures, exchanges can demonstrate that they are trustworthy and have the right regulations set in place to prevent fraud. 

  1. KYC Reduces the Risk of Financial Crime

Proper KYC procedures reduce the chances of financial crime as users are identified and verified. Having robust KYC programs can help weed out criminals and high-risk candidates, which in turn reduces the likelihood of illicit activity occurring through exchange or wallet. 

  1. KYC Will Ensure Stabilization in Crypto Market

AML and KYC regulations are important for stabilizing crypto exchanges for upcoming years. For customers to truly trust a system, they need to know the system in assessing risks to protect the users.