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Role of Corporate KYC in Business Onboarding

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While standard KYC refers to Know Your Customer solutions for customer authentication. Corporate KYC is a business verification process that certifies the existence and legitimacy of organizations. Due to the continuous increase in fraud, enterprises must choose better solutions that prevent the risk of financial and operational scams. Anti-Money Laundering (AML) regulations require Know Your Business (KYB) procedures to build better business relationships while ensuring financial transparency between organizations. Let’s dive deeper into what corporate KYC is and how it significantly enhances the business onboarding process while reducing the risk of monetary scams.

What is Corporate KYC?

Corporate KYC, also referred to the Know Your Business, is a business identity verification measure that verifies the legitimacy of organizations and their owners before onboarding or future partnerships. During a corporate check, obliged companies are required by AML requirements to go through the Politically Exposed Persons (PEPs) and sanctions screening procedures. Below mentioned are the essential elements of the corporate KYC procedure:

  • Verification of the identification of customers
  • Client Due Diligence (CDD)
  • Continuous observation

Corporate KYC is mandated by law for financial institutions and associated enterprises, such as fintech or cryptocurrency firms, but background checks of this kind may be used by any corporation to improve security and develop a more comprehensive risk management plan.

Significance of Corporate KYC

The purpose of corporate KYC is to assist businesses in confirming the identity of their customers, particularly other businesses. As part of the onboarding process, a firm takes precautions to stop fraud and identify any dangers related to a different company or consumer. Furthermore, the need for corporate KYC compliance is rising as a result of the changing regulatory environment. Companies need to protect the safety and security of their B2B connections as more procedures come under AML inspection, fines become harsher, and consumers should worry more about their data protection.

The Corporate KYC Origin

The term “corporate KYC” is relatively new in compliance, particularly when contrasted to the more well-established practice of doing consumer KYC identification checks. A security loophole existed for many years because of the scarcity of AML procedures specifically focused on business partnerships. In 1989, the G7 established the Financial Action Task Force (FATF) to fight Pablo Escobar’s narcotic enterprise’s penetration of the international financial system. Additionally, the FATF added anti-terrorist financing to its agenda after the 9/11 attacks, protecting the world’s financial system from illegal activities.

In 2016, the US Financial Crimes Enforcement Network (FinCEN) enforced new regulations under the CDD authorities to address this problem more thoroughly. These laws require that every single firm accomplishing business with another corporation adhere to a defined procedure for validating the authenticity of that other company. We refer to this as corporateKYC or KYB.

Before strict laws, criminals took advantage of this gap in the law by using shell corporations to hide their true identity. Because the company’s data had just been skimmed. Fraudsters can fund terrorists. Can embezzle money. And can commit other crimes without detection and without leaving any trace.

Advantages

Every company subject to regulatory compliance is required to take precautions against being engaged in money laundering or other illicit activities. Facilitating criminal behavior is risky and against the law, even if a company is not legally obligated to do corporateKYC checks. Corporate KYC benefits firms in three important ways:

  1. Business Security

Failure to do corporate KYC checks may damage a brand’s reputation and turn off investors or consumers. For instance, e-commerce platforms that have successfully completed the verification process might employ corporateKYC to establish a foundation of confidence among all users.

  1. Fraud Prevention

Corporate KYC checks may lower the risk of reputational damage and assist in combating fraud. The corporation may reduce the likelihood of engaging in unscrupulous practices by confirming the validity of prospective partners prior to forging a commercial partnership.

  1. Compliance

Respecting corporate KYC requirements is essential in regulated businesses. Noncompliance has consequences, such as heavy fines or jail time. Furthermore, putting in place solid corporateKYC rules may assist companies in developing a positive reputation for compliance, which can be a huge selling point when luring clients and investors.

The Bottom Line

Corporate KYC might be complicated if technology and automation are not used. Completing a significant quantity of paperwork and doing a thorough background check on the firm and its stockholders is mandatory for corporations. KYB checks may be made simpler by using a fully automated platform. By gathering the data, such as by doing automated AML checks, locating and confirming UBOs, and checking against watchlists and sanctions lists, the KYB solution helps businesses integrate corporate entities more quickly.

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