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:
- The identity of the users and the customers is verified.
- The account of the beneficial owners is verified.
- To verify and identify beneficial owners who own 25% or over 25% of a legal entity.
- 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 risks related to the businesses and financial institutes.
DIRO online document verification technology can play a vital role in reducing 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.