The KYB process: 5 best practices for implementation

The Know Your Business (KYB) process refers to the series of due diligence measures completed by a firm to gain a comprehensive understanding of its corporate customers. The primary objective of the KYB process is to ensure organizations do not unwittingly enter into a business relationship with a firm that has links to fraudulent or illicit activities. By gathering information about their customers’ ownership structures, verifying business legitimacy, and screening associated entities against adverse media, watchlists, and politically exposed person (PEP) lists, firms can identify potential risks and make informed decisions about entering into business relationships.

5 best practices for implementing an effective KYB process

From start-up fintechs implementing a KYB process for the first time to legacy financial institutions looking to enhance their company screening measures, these five best practices can be used by firms to help inform an effective KYB risk management framework.

1. Create KYB policies and procedures

Company policies and procedures should be recorded to help guide efficient financial management, as well as risk mitigation and the alignment of internal operations. Periodic reviews of these documents are very important to make sure they remain consistent with the company’s risk appetite and the environment they are operating in. To ensure analysts are aware of how specific corporate screening tasks should be approached, firms may choose to document the following KYB policies and procedures:

• The name of the senior manager that is responsible for the development and implementation of the policy and relevant procedures
• How often the KYB policies and procedures will be reviewed.
• What happens if a business or related entity is deemed high-risk (e.g., rejecting the company at onboarding, ceasing trading, on-site visits, etc.).   
• How to report suspicious activity to a designated authority
• If a KYB database, software program, or other service is utilized in the firm’s KYB process. 
• Any monitoring controls that are in place.

2. Provide training to employees

Compliance staff should receive appropriate training from the company’s Money Laundering Reporting Officer (MLRO)  – often representing a firm’s first line of defense – on how to effectively perform KYB checks per the firm’s policies and procedures. Employee training is a key component of any anti-money laundering and combatting the financing of terrorism (AML/CFT) program, as it ensures staff have the knowledge and understanding required to recognize financial red flag indicators and emerging industry trends. At a minimum, KYB training should cover:

• Information on AML/CFT and KYB regulatory compliance requirements.
• Internal policies to prevent financial crime.
• Recognizing illegitimate businesses and anomalous activity in customer-provided documents. 
• Assessing beneficial ownership structures. 
• Red flags relating to the money laundering and fraud typologies that pose a medium to high threat, according to the firm’s latest risk assessment.
• How to escalate suspicious activity.

3. Utilize advanced technologies

Advanced technologies, such as solutions utilizing artificial intelligence (AI), machine learning, and automation, can significantly enhance the efficiency and speed of KYB processes. As well as automating repetitive tasks and performing accurate data analysis at scale, advanced functionalities like dynamic risk scoring can help firms accelerate the decision-making on whether to onboard entities perceived as high risk. 

To avoid a complex and lengthy implementation process, firms can opt for an API-led KYB solution. The ComplyAdvantage API journey has 3 steps:

• Search for a company (optional). This can be done by inputting a company’s name or its Taxpayer Identification Number (TIN). 
• Create a case. If an analyst already knows the officers and/or controlling entities (beneficial owners and shareholders), these names can be added to the request, and they will be made part of the case and screened. 
• Receive a webhook with the results. The outcome of the screening task is a webhook that contains all case information, including:
  • The company being screened.
  • Officers and controlling entities of the company.
  • Risks evaluated against the company and its entities.

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4. Implement a risk-based approach

Since corporate environments fluctuate constantly, risks associated with business relationships can evolve over time. To keep up and adapt to these changes, firms should adopt a risk-based KYB process, which looks like compliance teams focusing on entities that pose a higher risk. This is particularly important as not ever corporate customer will carry the same level of risk. By taking a risk-based approach, firms are thus more likely to be able to identify and mitigate potential risks proactively.

Adopting this approach to KYB also demonstrates a commitment to robust risk management practices and regulatory compliance. From a regulator’s perspective, this can enhance a firm’s reputation and credibility. Building trust through strong risk management practices can give organizations a competitive advantage, attracting reputable business partners that value strong risk mitigation measures.

5. Perform ongoing monitoring

After a corporate client has gone through each stage of the KYB screening process, firms must be sure to subject them to ongoing monitoring measures. This typically involves regularly monitoring and evaluating the risks associated with the business and its controlling entities to ensure they continue to meet the organization’s risk appetite and compliance requirements. In particular, automated systems should be prioritized as they will often screen entities against sanctions lists, watchlists, and adverse media in real-time – creating the most accurate picture of a customer at any given time as a result.  

KYB by ComplyAdvantage x Detected   

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.