How to Combat Financial Crime and Achieve Business Success with KYB

By Chris Denbigh-White, CISO, Next DLP [ Join Cybersecurity Insiders ]

According to the Office of the Comptroller of the Currency, “Financial crime threatens the safety and soundness of financial systems worldwide. In some cases, these crimes threaten the security and safety of the nation. These crimes range from fairly simple operations carried out by individuals or small groups to highly sophisticated rings seeking funding for criminal enterprises or terrorism. Although financial criminals are often well-organized and persistent, bankers and citizens can take proactive steps to thwart their attempts.”

A study conducted by Forrester for LexisNexis in November 2023 titled, “True Cost Of Financial Crime Compliance Study, 2023 United States And Canada” further revealed that the total cost of FCC was $61B.

Financial institutions and other regulated entities have, as a result, taken a crucial step and established Financial Crime Compliance (FCC) measures; these encompass a comprehensive set of policies, procedures, and controls designed to effectively prevent, detect, and respond to financial crimes. The goal here is to ensure that they operate within the boundaries of the law and maintain financial system integrity.

And not surprisingly, regulatory bodies such as the Federal Trade Commission (FTC) in the United States, the European Data Protection Board (EDPB) in the European Union, or other national and international regulatory agencies do not look fondly on those that fail to implement FCC – levying severe penalties that include hefty fines and legal actions. Equally alarming – perhaps more so in some cases – failure to implement FCC may also inadvertently facilitate additional financial crimes, for which the organization may be held responsible.

Verify Business Legitimacy Securely with KYB

Banks, financial institutions, and businesses associated with them, such as fintech or crypto companies, are legally mandated to complete KYB (Know Your Business) verification.

KYB is a regulatory compliance process that involves verifying the identity and legitimacy of businesses – which helps organizations to achieve FCC. This can include, but is not limited to, checking a company’s registration detail, ownership, financial stability, regulatory adherence, and other criteria. The goal of course is to validate a business — i.e., it is authentic and trustworthy. Not only for financial institutions, but for virtually any other business-to-business (B2B) org.s, this verification process is essential, as it helps maintain the integrity of the financial system and reduces risks associated with fraudulent entities.

KYB implementation involves gathering and analyzing a whole host of documentation and data, including company registration records, financial statements, and information on key stakeholders. Then to kick it up a notch, KYB may also leverage technology and data analytics to automate and enhance the efficiency of these checks. Businesses can build more secure and reliable partnerships, improve their risk management strategies, and demonstrate their commitment to regulatory standards — by ensuring compliance with KYB regulations.

Automated KYB for Streamlined, Secure Business Verification

Automated KYB processes can efficiently extract and validate information from public datasets, company registries, and other trusted APIs (Application Programming Interfaces), significantly accelerating and enhancing the accuracy of data collection. Leveraging Optical Character Recognition (OCR) technology, relevant information can be extracted from scanned documents and verified for authenticity using techniques such as watermark detection and hologram recognition.

KYB, in real-time, can also enables organizations to access global sanctions lists and employ advanced algorithms to screen corporate entities.. If a match is found on the sanctions list, an alert is triggered for further review, allowing businesses to address potential compliance risks swiftly and effectively. By connecting to data sources that provide real-time updates on ownership changes, legal status, financial performance, regulatory actions, and negative media coverage, KYB also facilitates continuous monitoring of companies – a proactive approach alerts businesses to important changes or red flags, enabling timely interventions and effective risk mitigation.

Today’s automated KYB solutions increasingly leverage machine learning (ML) and artificial intelligence (AI) to analyze diverse data points, including financial indicators, market trends, news articles, and social media sentiments, to generate risk scores for corporate entities. So, automated KYB — with its data-driven approach — enhances the accuracy and consistency of risk assessments (and reduces the potential for human error), enabling businesses to make informed decisions efficiently and avoid financial pitfalls.

KYB, The Cornerstone of Modern Compliance and Business Success 

To sum it up, KYB is crucial for businesses for multiple reasons:

1. Improves Decision-Making – KYB utilizes advanced technologies like OCR and machine learning to streamline processes and enhance the accuracy of data collection, leading to better-informed business decisions

2. Prevents Fraud – By thoroughly verifying business details and maintaining updated records, KYB reduces the risk of fraud and financial crime, ensuring a safer business environment

3. Reduces Financial Penalties – KYB helps businesses avoid costly fines and penalties associated with non-compliance, which can be financially devastating

4. Mitigates Risks – KYB provides continuous monitoring and real-time alerts for any changes or red flags, allowing businesses to address potential issues quickly and effectively

5. Builds Trust – KYB helps maintain the trust of partners, investors, customers, and employees, which is crucial for long-term success, by ensuring regulatory compliance

6. Enhances Reputation – Regularly verifying business legitimacy protects your company’s reputation by preventing associations with fraudulent or unethical activities

7. Drives Competitive Advantage – A strong compliance framework, supported by KYB, helps maintain a positive public image, giving businesses a competitive edge in the market.


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