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: This involves collecting relevant information about businesses and their key stakeholders from diverse sources, such as public databases, financial records, and third-party vendors.
- Data verification: Once the information has been gathered, its relevance and legitimacy must be verified. Automated KYB solutions can cross-reference the collected data to ensure accuracy and reliability, helping FIs understand better who they’re doing business with.
- Risk scoring: To help companies evaluate the trustworthiness and stability of their business relationships, a robust KYB solution will generate a risk score for the entity based on the FI’s risk appetite. Well-automated KYB software will do this dynamically, providing firms with an up-to-date risk score based on relevant information in real-time.
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: Automated KYB checks can expedite onboarding, drastically reducing the time and effort required to verify business entities and stakeholders. Instead of manually sifting through piles of documents and databases, automated systems swiftly gather and corroborate information from various trusted sources.
- Enhanced accuracy and reliability: One of the key advantages of automation is reducing human error. By relying on cutting-edge technology, automated KYB checks ensure precise data gathering and verification. The system cross-references information from multiple sources, leaving no room for oversights or inaccuracies. This accuracy builds trust between firms and their clients and helps analysts make well-informed decisions based on reliable data.
- Compliance with regulatory standards: The automation process ensures firms adhere to various AML/CTF regulatory requirements, such as those outlined in the Customer Due Diligence (CDD) Final Rule by the Financial Crimes Enforcement Network (FinCEN). By streamlining the compliance process, firms can avoid potential legal repercussions and safeguard their reputation in the market.
- Resource optimization: By reducing the time and effort spent on traditional verification processes, automated KYB checks can allow firms to redeploy their compliance teams’ expertise to higher-value tasks, such as improving customer experience or developing innovative products and services. This enhances overall efficiency and leads to cost savings in the long run.
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, such as:
- Collating information on newly established businesses: Obtaining accurate and comprehensive data on newly established businesses can be a daunting task. Unlike well-established enterprises with a substantial digital footprint, start-ups and newly formed entities may have limited information available. To combat this challenge, automated KYB checks must be able to access diverse sources and databases to piece together relevant details, such as company registrations and ownership information. The challenge lies in ensuring that the automated system can efficiently navigate different data points and consolidate fragmented information to form a clear picture of the business. Striking a balance between rigorous verification and ease of onboarding is crucial to accommodate businesses of varying sizes while maintaining compliance and risk management standards.
- Scrutinizing whether a firm is illegitimate: The rise of shell companies and other fraudulent entities poses a significant challenge in the KYB automation process. These bad actors may present themselves as legitimate businesses, making it imperative for the automated system to scrutinize and detect any red flags. 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.
- Offboarding or rejecting an entity due to out-of-date information or inaccurate, unconsolidated data profiles: 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. The automation system should integrate real-time data updates, continuous monitoring, and data cleansing protocols to maintain the relevance and accuracy of the information used in the KYB screening process. Additionally, implementing a layered verification approach, where automated checks are complemented by human review, can serve as an additional safeguard to help reduce false negatives and ensure fairness in decision-making.
The Importance of AI and Machine Learning in KYB Verification
Artificial intelligence (AI) and machine learning (ML) are crucial in automating the KYB process effectively. Applying AI and ML can transform the customer onboarding process and enhance an FI’s risk management processes by offering speed, accuracy, and adaptability. But how do these technologies work to bring about these benefits?
First, AI-powered data extraction algorithms collect and analyze vast amounts of unstructured data from multiple sources, such as company registries and financial records. ML models then ingest and categorize this information, identifying key details like business names, addresses, and ownership structures. By learning from historical patterns and the behavior of known high-risk entities, ML algorithms can flag anomalies and highlight potential red flags. This enables businesses to take a risk-based approach and focus their due diligence efforts on high-risk cases, optimizing resources and expediting the verification process.
AI and ML can also continuously improve KYB automation over time. The systems can learn from the outcomes of previous verifications, enabling them to fine-tune their algorithms and become more accurate and efficient. AI-powered KYB automation solutions can adapt to evolving AML/CTF regulations and emerging financial crime risks through iterative learning and constant updates.
Automated KYB Solutions from ComplyAdvantage
With KYB by ComplyAdvantage, firms can deliver the speed and efficiency required by their corporate customers without compromising their regulatory obligations. Automation is built into the solution, allowing firms to:
- Increase customer conversion rates up to 68 percent by accelerating the speed at which accounts are opened.
- Enable straight-through processing and escalation to senior staff.
- Accurately model a risk policy to improve the efficiency of the onboarding flow.
- Confidently mitigate risk by screening against the world’s only real-time database of people and businesses.
- Never miss updates to a customer’s risk profile with the solution’s dynamic risk-scoring functionality.
- Reduce false positives and improve the accuracy of results with ComplyAdvantage’s matching technology.
To learn more about ComplyAdvantage’s automated KYB solution, request a demo.
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