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.
