The Evolving Role of KYB in Business Onboarding

Know Your Business (KYB) is crucial for financial institutions to verify corporate clients' legitimacy and mitigate risks associated with money laundering and fraud. However, traditional, manual KYB processes often struggle to keep pace with the fast-changing business landscape. Corporate onboarding involves more complexities compared to individual onboarding, as businesses often span multiple jurisdictions, have dynamic ownership structures, and may change their operating locations or business activities without notifying their financial institutions. Such changes can significantly alter a company's risk profile, leaving financial institutions vulnerable if they rely solely on periodic KYB reviews.

The financial industry has been moving towards a perpetual Know Your Customer (pKYC) model as a solution to these challenges. Perpetual KYC is a proactive and continuous approach that allows institutions to monitor their customers in real-time, quickly detecting any changes that may impact a customer’s risk profile. This shift is helping firms manage compliance risks more efficiently, enabling a more effective response to changing corporate dynamics.

From Periodic to Perpetual: The Shift in KYB Practices

The traditional KYB model relies on periodic reviews at set intervals—annually for high-risk clients or every few years for lower-risk ones. However, with the speed at which business structures and ownership can change, this outdated approach often leaves gaps in monitoring, creating potential vulnerabilities. Changes such as shifts in corporate ownership, new geographical markets, or substantial changes in business operations may not be detected until the next scheduled review. These gaps can expose financial institutions to increased risk.

Manual processes used in traditional KYB are also cumbersome and costly. Requiring individual outreach to clients to confirm their information or request updated documents demands significant time and labor. Additionally, clients may be frustrated by repetitive contact, particularly when multiple departments within the same institution request the same information, leading to poor customer experience and even client attrition.

Adopting a pKYC approach helps solve these issues by leveraging advanced technologies like automation and artificial intelligence (AI). Through these technologies, financial institutions can continuously monitor client information and assess risk in real-time. This allows for a more streamlined and efficient KYB process, minimizing disruptions for clients and maximizing compliance effectiveness.

KYB vs. KYC: Key Differences in Client Onboarding

KYB differs significantly from traditional Know Your Customer (KYC) processes, primarily in scope and complexity. KYC is focused on verifying individual clients' identities, while KYB involves understanding corporate entities. During corporate onboarding, financial institutions must verify the company’s registration, ownership, legal representatives, and activities. Identifying Ultimate Beneficial Owners (UBOs) is especially important, as it helps institutions understand who truly controls or benefits from a business.

Corporate clients are more dynamic compared to individuals—companies can change ownership structures, expand operations, or enter new markets regularly. These events often require frequent KYB updates to maintain an accurate risk assessment. In contrast, individual clients rarely undergo significant changes that would necessitate frequent KYC updates. The dynamic nature of businesses makes pKYC particularly valuable for KYB, as continuous monitoring can promptly detect any significant changes that could increase risk.

How Perpetual KYC Transforms KYB

Implementing a perpetual KYB model offers several benefits to financial institutions:

• Proactive Monitoring: By utilizing both public and private databases—such as corporate registries, adverse media, and global sanction lists—pKYC continuously monitors for discrepancies, such as changes in UBOs or unusual business activities. Alerts are generated automatically, allowing compliance teams to address potential risks swiftly.
• Cost Efficiency in Onboarding: Onboarding corporate clients is often time-intensive and costly. Reports suggest that completing KYB for corporate entities can take anywhere from 18.5 to 62 hours, costing significantly more than onboarding retail clients. By automating these processes, institutions can reduce both time and costs, making corporate onboarding more efficient.
• Operational Efficiency: Automation reduces the need for manual labor in KYB processes, alleviating workloads for compliance teams and enabling them to focus on high-risk or complex cases. This not only enhances efficiency but also contributes to a more effective risk management strategy.
• Minimizing Human Error: Automation also helps minimize human error, which can be common in repetitive manual tasks. This leads to improved data accuracy across the organization.
• Enhancing Client Experience: Perpetual KYB reduces the need for repeated client outreach. Clients are contacted only when absolutely necessary, which improves the overall onboarding experience and helps build trust between clients and financial institutions.

Conclusion: The Strategic Role of Perpetual KYB

Traditional KYB processes are increasingly outdated in the face of modern compliance demands. By adopting a perpetual KYB approach, financial institutions can better manage risk, particularly the unique complexities associated with corporate clients. Continuous, real-time monitoring provides a proactive, risk-based strategy, crucial for maintaining compliance and safeguarding institutions from financial crime threats. As financial institutions embrace pKYC, they not only ensure effective risk management but also enhance operational efficiency and client satisfaction, positioning themselves for long-term success.

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