Business verification is crucial to preventing fraud, ensuring compliance and maintaining customer trust. It can be a complex and manual process, but Evident simplifies business verification with dynamic workflows customized for your needs.
Know Your Business (KYB) practices are protocols aimed at mitigating or kick-starting fraudulent activities in commercial B2B environments. It includes identifying and verifying business details like legal name, address, phone number and website.
Know Your Business
Know Your Business or KYB procedures are an essential part of Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) regulations. Regulated businesses are required to perform these checks during onboarding to ensure that they are dealing with a real business entity and not just a shell corporation present only on paper. Performing KYB checks during business onboarding can assess a company’s background, owners, records and financial activities to identify risk.
Conducting a business verification requires gathering and reviewing documentation including business registration and incorporation documents, tax filings, and financial statements. This can also include evaluating references and conducting background checks on individuals associated with the business to assess integrity and trustworthiness. A common practice of KYB involves confirming that the ultimate beneficial owner is a real person and that they are not on watch lists or sanctioned lists.
Using automated business verification tools helps companies save time and resources while ensuring compliance and mitigating risk. Unlike manual processes, these AI-powered solutions are less prone to human error and are able to verify information quickly and accurately by connecting to government-backed databases directly. Youverify, for example, can help companies conduct KYB and identity verifications simultaneously in one click and eliminate the need to visit directories. It can also detect red flags such as inconsistent or inaccurate data, erroneous addresses and a lack of clarity around ownership structure.
Performing business verification procedures helps prevent fraud, ensure compliance, manage risk, and maintain reputation. It also allows financial institutions to make informed investment decisions. For fintechs and neobanks, which rely heavily on digital channels to interact with customers, implementing effective fraud prevention is particularly important. Fraudsters are increasingly sophisticated and can impersonate people to steal money or personal information, which makes identifying the identity of business owners critical.
Employee fraud is a serious problem that can cost organizations significant financial loss, legal costs, and damage to their reputations. It’s important to develop a plan to prevent fraud and regularly communicate that policy to all employees. Knowing that management is watching for fraudulent activity and will take disciplinary action can deter dishonest employees from planning to commit fraud.
Creating an internal system to document all transactions and prepare bank deposits is another helpful fraud prevention tool. This can help spot patterns of activity that may indicate a fraudster is at work, such as sales receipts being deposited in multiple accounts or purchases being made to fictitious vendors. According to the ACFE 2014 Report, over 40% of occupational fraud cases are detected by a tip—and employees are consistently the number one source of tips. This is because they are often the first to notice unusual or unexplained behaviour in their workplace.
Business verification is a key step to maintaining compliance standards. It allows companies to identify possible regulatory violations before they become a real problem. For example, a non-compliant company might face costly lawsuits or lose the ability to participate in government contracts.
Regulatory compliance requires businesses to stay up-to-date on regulations and ensure that their business practices comply with ethical codes and norms. This can be challenging as regulations often change and evolve at the industry and jurisdiction level. Fortunately, best-in-class business verification solutions can help companies meet their compliance standards and protect them from fines and penalties.
Business verification can also be used to comply with KYC and AML regulations by verifying the identity of the entity’s beneficial owner. This is easier now than ever before due to AI-powered KYB solutions like Youverify that can connect with official commercial registers and databases worldwide to verify the details of an entity with a single click. This saves organizations a lot of time and effort that would be required to manually search directories and public records in different countries. The solution can also screen against global sanctions lists to identify any entities that are associated with illegal activities. For example, the Russian invasion of Ukraine has forced Western companies to review their suppliers and vendors. This is a great example of why it’s so important to verify business partners before signing a contract with them.
Businesses can take many types of risks, such as investing in a new product or entering a foreign market. These are risks that a business intentionally assumes in order to generate superior returns or benefit from the endeavor. Other risks arise from adaptive counterparties, whether it’s another company trying to out-compete you in the marketplace or a lone cyber hacker seeking to undermine security measures.
The best way to mitigate risk is to have the right people in place. This includes both senior executives who can communicate the need for strong risk management practices downward throughout the enterprise and employees who can easily communicate observations of potential risks back upward to those in leadership positions. This cycle of communication allows the organization to respond quickly to changing circumstances and stay on top of emerging threats.
It’s also important to have clear communication about the five key principles of risk management. Otherwise, risk conversations tend to devolve into a series of confrontational and defensive exchanges that prevent discussion of how different risks interact. Effective risk management requires an open, collaborative culture where everyone is pushing in the same direction. This is especially true when it comes to the free flow of information into and throughout the organization, which plays such a critical role in successful risk-based decision making.