KYB automation: Everything you need to know

In 2022, research by customer experience management platform OvationCXM found that 76 percent of businesses have given up while onboarding a financial product or service. Among the top frustrations cited included complicated processes, lengthy waiting times, and working with too many different people or organizations. Essentially, speed and efficiency were lacking.

When onboarding business customers, financial institutions (FIs) are under pressure to implement a seamless Know Your Business (KYB) screening process that is accessible and doesn’t leave customers waiting. Speed and efficiency are top of mind, but so is the need to remain compliant with anti-money laundering and counter-terrorism financing (AML/CTF) regulations that require firms to establish who their customers are and understand what kind of financial activity they are involved in. 

This article explores everything firms need to know about KYB automation, how it works, its benefits, and how to combat potential challenges.

What is KYB automation?

KYB automation refers to the process of using advanced technology to efficiently verify and assess the legitimacy and risk profile of business entities and their key stakeholders. It involves automating data gathering, verification, and risk assessment tasks to ensure compliance with regulatory requirements and to make well-informed decisions when onboarding new corporate clients. 

The key components of KYB automation typically include:

• Data gathering is the collection of information that is relevant to businesses and their key stakeholders from diverse sources. This may include public databases, financial records, and third-party vendors.
• Data verification occurs after the information has been gathered. At this point, its relevance and legitimacy must be verified. Sophisticated KYB solutions can often automatically cross-reference the collected data to make sure the information is accurate and reliable. This helps FIs understand better who they’re doing business with. 
• Risk scoring allows firms to evaluate and understand just how trustworthy and stable their business relationship are. These scores are generated in light of the FI’s risk appetite and often in real-time. What are the benefits of automated KYB checks?

What are the benefits of automated KYB checks?

By implementing KYB automation, businesses can optimize their operations and enhance customer experiences, leading them to greater productivity and competitiveness in the market. It is a vital tool for savvy businesses looking to leverage technology to achieve growth and success while mitigating risks and maintaining regulatory compliance.

Additional benefits of automated KYB checks include:

• Time-efficient onboarding.
• Enhanced accuracy and reliability.
• Compliance with regulatory standards, such as those outlined in the Customer Due Diligence (CDD) Final Rule by the Financial Crimes Enforcement Network (FinCEN). 
• Resource optimization.

The main challenges of the KYB automation process

While the KYB automation process brings undeniable advantages, it can also present challenges if the solution does not offer the right amount of flexibility or does not have access to a wide range of up-to-date information repositories. 

Without these features, some common challenges can occur, including:

• Ensuring the automated system can efficiently navigate different data points and consolidate fragmented information to form a clear picture of a newly established business. 
• The rise of shell companies and other fraudulent entities poses a significant challenge in the KYB automation process. To mitigate the risk of onboarding such businesses, firms should ensure their automated KYB solution can check the company’s tax identification number (TIN) against the IRS register. 
• An over-reliance on outdated or unconsolidated data profiles can lead to incorrect decisions, such as wrongly offboarding or rejecting genuine businesses. Ensuring data accuracy and keeping data profiles up to date is crucial to avoid such errors.

KYB is broken: We’re partnering with Detected to fix it

Discover how Detected and ComplyAdvantage are revolutionizing KYB processes to deliver faster, smarter, and more efficient compliance solutions.

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The importance of AI and machine learning in KYB verification

When automating the KYB process, artificial intelligence (AI) and machine learning are crucial in order to do it effectively and efficiently. These advanced technologies can also provide firms with the added benefits of speed, accuracy, and adaptability. But how do these technologies work to bring about these benefits?

First and foremost, AI-powered data extraction algorithms collect and analyze vast amounts of unstructured data from multiple sources, such as company registries and financial records. Following this step, ML models can be built to ingest and categorize the information. When doing this, the models can be programmed to identify details such as business names, addresses, and beneficial ownership structures. These models can also learn from historical patterns and map out behaviors typical of high-risk entities. 

Secondly, over time, AI and ML can help continuously improve automated KYB processes by learning from the outcomes of previous verifications. This can then help inform firms on where they need to fine-tune their algorithms to become more accurate and efficient.

Automated KYB solutions 

By streamlining workflows, centralizing risk data, and introducing a customer-friendly onboarding portal, our combined KYB solution with Detected reduces manual effort, accelerates onboarding, and minimizes operational costs. As a result, businesses can now benefit from dynamic risk scoring, continuous monitoring, and fewer false positives – ultimately driving revenue growth while enhancing compliance and customer experience.