KYB Process Automation – Real-life scenarios for Business Payroll and Benefits (BP&B) and B2B Cross Border Payments
April 27, 2020
This is part 1 of a 3 part series blog post where we explore real use cases on Know Your Business (KYB). The first blog post is an introduction of those cases and how their KYB requirements are addressed within the IdentityMind Platform. Part 2 looks at the integration and implementation process that these businesses carry out, and Part 3 is about the results of those implementations.
What is KYB?
Business verification and due-diligence (called KYB and a close cousin to Know Your Customer — KYC) helps ensure that you’re not onboarding businesses which will use your platform as a financial rail for illicit activities like fraud, terrorism, human-trafficking, drugs, corruption, etc.
KYB capabilities have evolved over the last few years and have come a long way from being a totally manual process, but have not reached complete automation –may never get there. However, the evolution of KYB automation capabilities has not led to proportional adoption by companies/institutions. Growing FinTechs are at the forefront of utilizing near-automated capabilities for business onboarding compared to more traditional organizations who are heavily reliant on man power.
Let’s work through a couple of scenarios on how real companies use KYB:
Scenario 1: A Business Payroll and Benefits (BP&B) Company
A growing FinTech segment is business payroll and benefits (BP&B). These companies must have a KYB program to perform business verification and due-diligence before signing up new businesses, and a KYC/CIP program for onboarding employees of those businesses. The KYB program includes business verification, risk assessment, beneficial owner identification and certification, AML compliance, continuous monitoring functions; and the KYC program includes CIP (Customer Identification Program), Identity Risk, AML compliance.
When onboarding a new client, a BP&B collects information relevant for business verification and due-diligence (business name, DBA – doing business as, address, website, phone, email, date established, state of incorporation, EIN etc.), risk assessment (Business Entity Type, Business Description, SIC Code, NAICS Code, number of employees, revenue etc.), beneficial owners (company officers, directors etc.).
BP&B company uses the provided information to:
- Verify the business identity and its existence by checking the information provided against secretary of state records, IRS records, business name and address association, business registration active status;
- Perform business due-diligence by reviewing business website content and classification against business entity type and business description, SMB phone number area codes checking against business zip code;
- Assess risk by analyzing SIC codes, NAICS codes, revenue size based on initial risk appetite of BP&B;
- Assess compliance by screening business name/officer information against Sanctions lists, PEP lists and Negative News; and beneficial ownership by collecting the information from the business, collecting the information from websites and business registration information available in Secretary of State records.
Scenario 2: B2B Cross-Border Payments
One of the first industries to emerge from the FinTech world was payments, and was focused on transact in a faster way, more personal, without the inconveniences and the expenses of the current wire and money remittances. A segment that continues to see exponential growth is cross border payments, and more specifically business to business (B2B) payments. Imagine that you are running a software development company, and you are expanding, say, into Singapore. You may need to hire services in Singapore and you need a way to pay for these services. In the old days you would need to set up very expensive and manual infrastructures to get those payments out. B2B Payment FinTechs are addressing those problems far better than ever before. In order to do so, B2B Payment organizations have to onboard businesses on both ends before enabling and carrying out payments.
Similar to the scenario above, B2B Cross-Border Payments have to perform both KYB and KYC, but with a few fundamental differences:
- This is movement of money that needs to meet the regulatory requirements, of not one, but often two different jurisdictions with different details in the requirements.
- Finding data about businesses in other parts of the world is very challenging and very manual.
- You have to do it for two businesses.
Some additional data and considerations are needed in assessing risk (when compared to the previous case). Additional risk assessment techniques include triangulating location analysis: IP geolocation, billing addresses, and addresses from the beneficial owners.
IdentityMind KYB Solution
IdentityMind’s business verification and due-diligence (KYB) processes include:
Business Verification: proves whether the business is properly defined. In order to do so you are verifying the EIN or tax identification numbers, the articles of incorporation, that the name of the business or DBA (Doing Business As) matches the address provided and that it matches the registered address of the business. The business verification level of automation is dependent upon if the business is domestic (US), regional (NA, EU, EMEA) or global, business size from Micro-merchants to SMBs to Corporate entities, verification source to rely on be tax authorities or state/country business registration authorities.
Business Risk: Assesses the risk of the business you are dealing with. The business risk assessment can be automated and standardized by profiling and assessing risk by evaluating type of business, legal entity structure, category of business, revenue size classification against the size of business, and geographical location. Manual risk assessment and investigation have become efficient as well by making the relevant data available as one platform vs. searching for information in multiple websites and tools. Business Risk calculation has evolved with the addition of Machine Learning based models in addition to the rules (risk matrix) to effectively assess the business risk.
Business Compliance: Matches against regulatory sanctions lists provided by different regulatory entities. This includes OFAC, EU Freeze lists, and many others. The matching against lists to achieve business compliance can be automated by screening businesses against sanctions and achieving high straight through processing with low false positives.
Beneficial Owners Identification: Beneficial Owners (referred as Ultimate Beneficial Owners or UBOs) are in simple terms the actual beneficiaries of the business. As part of the KYB process you need to make sure you understand who are the actual individuals behind the business. Beneficial owner identification processes have reached semi-automation state depending upon the country and availability of beneficial owner registries (EU AMLD5 is a clear leader thus-far and other countries are making the data available but the progress and the quality of data varies country by country). For institutions which have opted to do Beneficial Owner Certification, the processes involved have achieved high efficiency with the right set of tools.
Business Continuous Monitoring: Businesses are continuously evolving and the processes involved in continuous monitoring can be semi-automated based on how automated the initial assessment processes were and with the availability of new data over time, even if the initial assessment was done manually the continuous monitoring can be automated.
Automation and Operations
The KYB processes and checks defined above can take hours to days without a platform with automation capabilities. The longer it takes the higher the impact to client acquisition either because of resulting in poor onboarding experience, or by losing clients to competition. However, cutting corners to achieve faster onboarding without proper controls increases the risk, exposing the business to fraudulent actors and their illicit activities.
The IdentityMind KYB solution for business verification and due-diligence, risk assessment and compliance capabilities enables businesses to automate large portions of their KYB program. An automated KYB solution enables them to offer better onboarding experiences and reduces their fraud exposure.