KYC KYB compliance: 5 most common mistakes
Processes of KYC KYB compliance are often complicated and error-prone. Check what mistakes are worth avoiding and learn about solutions that can ease the common pains of companies.
Introduction: an explanation of compliance and KYC KYB abbreviations
What is compliance?
In the business context, compliance refers to the process of creating and applying procedures in order to protect an enterprise against legal risks. It is mostly related to the regulatory requirements which have been growing over the last years. In other words, compliance is a set of internal safety procedures.
The term compliance is very often combined with the abbreviations KYC and KYB. What do these acronyms mean?
What is KYC?
KYC is an abbreviation of the expression Know Your Customer. It applies to the accuracy of a verification of a customer.
In KYC processes it is needed to collect a credible information about a given client that allows you to determine their identity and assess their credibility. As part of KYC compliance processes, there are, among others, activities such as:
- Collection of personal data
- Verification of the correctness of the obtained data
- Safe data storage
- Checking customer history from various sources
- Constant monitoring of changes
In many business sectors, KYC is a mandatory procedure just like due diligence and wise risk management. In Poland and other EU countries the main purpose of using KYC compliance is to prevent various types of financial scams, identity thefs and money laundering in accordance with the EU AML Directive.
KYB — what does that mean?
KYB is short for Know Your Business. In KYC process the client can be both a natural or a legal person, but KYB focuses on enterprises that is B2B customers.
In order to meet the requirements of KYB, organizations must obtain and then verify the information about the companies with which they want to establish any business cooperation.
What examples of activities are performed as part of KYB compliance processes?
- Collecting data about the company (usually from business registers)
- Verification of the obtained data, including investigating the ownership structure of the entity
- Checking capital and personal connections of the entity
- Identification of the ultimate beneficial owners
- Verification of occurrence on PEP and sanction lists
To facilitate, accelerate and streamline these activities, most companies decide to at least partially automate KYB processes with the help of RegTech providers like our data software house Transparent Data.
KYB, just like KYC, is a process that is implemented by financial, insurance, leasing, and large-scale trading institutions with B2B clients (from FMCG to fuels). KYB compliance allows companies to protect themselves from cooperating with an entity that does not exist, or is the so-called shell corporation.
TOP 5 KYC KYB compliance common mistakes
- Verification of the client or company in only one business register
- No analysis of the relations between people and capital
- No interest in investing in the automation of business processes
- Having incomplete and outdated information in the database
- Treating KYC KYB compliance as a regulatory burden
1. Verification of the client or company in only one business register
Each country usually has more than just one credible data source like a business register and it is worth accessing because even the national court registers usually have some data errors and outdated information.
For instance, in Poland you can verify any company that is not a sole proprietorship in The Polish National Court Register (pol.: Krajowy Rejestr Sądowy), but still it’s a good KYB compliance practice to verify this entity also in REGON database. Then you should check the current status of the company in The List of VAT Taxpayers in Poland (so-called White List) and verify there the client’s bank account numbers. Later you can look at MSiG — Polish official Court and Economic Monitor Gazette (pol.: Monitor Sądowy i Gospodarczy), which includes notices about bankruptcies of Polish companies and individuals and information on restructuring and liquidation process.
In the subject of bankruptcy under KYC KYB compliance, you can also check whether the client or their company is entered in the Polish Register of Debtors (pol.: Krajowy Rejestr Zadłużonych), about which we wrote more HERE.
Looks like a lot of work, right? Well, it’s not the end.
As part of KYC KYB compliance it is also very important to identify the ultimate beneficial owners of the company. In this case, you can check The Central Ultimate Beneficial Owner Register of Poland, The CRBR. Wondering how to verify UBO in Poland in CRBR? Read this quick guide.
KYC KYB compliance processes in many companies are also extended by checking:
- PEP lists with politically exposed persons
- Sanction lists — verification of AML KYC KYB compliance cannot take place without checking whether a given entity does not appear on the sanction lists; if an entity has been sanctioned, no business relations can be established
- Economic Information Bureau — it provides information on the amount of debt of a given entity
Verification in many sources is fundamental in KYC KYB compliance process, but it is also very time-consuming. This problem is eliminated by RegTech data software solutions, which aggregate data from multiple sources. Ask about risk assessment reports and efficient KYC KYB compliance APIs for verification of Polish companies.
2. No analysis of the relations between people and capital
As part of KYC KYB compliance it is also necessary to check capital and personal relations in order to avoid the conflict of interest or cooperation with a company to which sanctions apply.
Tracing all the relations between people and capital is a difficult task. Sometimes it feels like you’re hitting your head against a brick wall. It requires from the analyst to check all key persons and related companies, which then, one by one, must be separately verified due to obtain answers to the questions of who is the UBO.
3. No interest in investing in the automation of business processes
Sometimes managers do not want to invest in RegTech solutions that could automate KYC KYB compliance processes via API, because such data can be downloaded manually by their departments for free from open business registers. However, in practice there is not enough time or people for this task. As a result, organizations risk financial losses that may occur after establishing cooperation with an unreliable, indebted or non-existent company.
Summarizing the benefits:
- Automation of verification as part of KYC KYB compliance activities allows checking several registers and other sources in a few seconds.
- Investing in process automation allows to eliminate errors in the database in the future, which are the result of manual copying or rewriting of data by employees.
- Processes that require manual work can be costly in terms of the time spent on it and the subsequent consequences of mistakes made.
- Automating the process of obtaining data for KYC KYB compliance procedures can significantly increase efficiency and, importantly, ensure an appropriate level of safety for the company and its partners.
4. Having incomplete and outdated information in your database
Smart risk management and due diligence in the company must go hand in hand with the clean databases. In order to correctly verify the client in KYC KYB compliance process, it is essential to ensure that data held by a company is complete and up-to-date.
Apparently KYC KYB compliance process automation and data cleansing seem to have nothing to do with each other, but that’s a wrong assumption. Company information API allows you to ensure the constant purity of your data. This is due to the fact that thanks to the API integration with your internal ERP / CRM system, data records are automatically completed for new customers, and in the case of regular clients, the registration data can be checked again for each transaction.
5. Treating KYC KYB compliance as a regulatory burden
KYC KYB compliance is a process that companies in Poland sometimes perceive as an unpleasant obligation that must be met in order to comply with legal regulations. They think of KYC KYB compliance like it is an unpleasant, redundant point on the company checklist that needs to be ticked off. Instead, it’s worth using this process in a larger risk management and development strategy.
KYC KYB compliance procedures can sometimes increase bureaucracy and generate additional costs, but overall, working with an unreliable company after neglecting the client verification process is definitely more harmful.
Think of KYC KYB compliance as a gateway that allows honest clients to access your company’s services faster and stops criminals from getting in.
Automation of business processes to ensure the efficiency of KYC KYB compliance
Are you looking for solutions that will allow you to automate processes in your company? Check the offer of our technology company Transparent Data. More information about the economic data provider can be found on the website:
