What is Know Your Customer (KYC)? 

Know Your Customer (KYC) is a term that refers to procedures and mechanisms that are used to verify the identity of customers before conducting business with them – accordingly, KYC is intrinsically linked to Identity Verification. 

To find out more about KYC, click here. 

What is Know Your Business (KYB)? 

Know Your Business (KYB) is a specific term that refers to the types of identity verification and due diligence checks that are conducted on businesses, institutions and organizations. In other words, KYB refers to the variety of KYC-style checks that are run on juristic entities (such as businesses) instead of individuals. 

KYB checks establish and verify important information such as the structure, ownership, purpose and activities of a company, institution or organization. By verifying such information, one can ensure that the entity in question is not fraudulent and that the owners are not concealing their identity for illegitimate means.  

Know Your Business (KYB) is very similar to the concept of Know Your Customer (KYC). However, it must be noted that KYC is a broad term and can be used in place of KYB, KYB is a specific term and cannot be used to refer to the types of identity verification and due diligence checks that are run on individual customers. 

It should be noted that KYB checks will often include elements of individual identity verification checks that are designed to verify the identity of important individuals within the business, such as company directors. 

Why is KYB Necessary? 

By conducting KYB checks, a business can scan for red flags and make informed decisions about whom they conduct business with. 

• AML/CFT Regulatory Compliance: Firstly, as part of their national AML/CFT legislation, many countries legally require businesses to conduct a variety of due diligence checks related to identity verification and data validation. Failure to comply with these regulatory requirements can lead to the imposition of serious fines and even sanctions.
• Fraud Prevention and Risk Mitigation: Secondly, KYB checks are essential tools for fraud prevention and risk mitigation. As fraud schemes grow more complex and harder to detect, conducting comprehensive KYB checks as part of a risk management and mitigation strategy is essential for ensuring security and protecting the business from the serious threat of fraud. 

Who Needs to Conduct KYB? 

In South Africa, various businesses, institutions and organizations are designated as Accountable Institutions (AIs). Although the exact compliance requirements for AIs will vary depending on more specific classifications, all AIs are legally obligated to conduct some degree of due diligence that typically includes KYB checks when dealing with another business. 

Digital KYB Solutions 

Today, all KYB and Enhanced Due Diligence (EDD) services are available online. Online tools like company registration checks enable highly efficient, accurate and cost-effective due diligence solutions that can be completely automated and easily integrated into a digital customer onboarding process. 

For clients that need to conduct a significant number of KYB checks as part of their customer onboarding process, advanced APIs enable the automation and seamless integration of such checks into a world-class customer onboarding process. For businesses that process lower volumes of due diligence requests related to identity verification and data validation.

From the perspective of risk assessment and risk mitigation, the digitalization and automation of KYB checks mean the verification of identities and validation of information can be conducted in minutes, thereby allowing for the near-instantaneous availability of important information that allows fast and informed decision-making. In today’s volatile economic crime threat landscape, the accessibility of high-quality tools that empower businesses to mitigate the risk of fraud are essential for securing our economy against the threat of financial crime. 

ThisIsMe offers a comprehensive range of due diligence solutions for KYB. For businesses that need to process a significant number of due diligence requests, our advanced API enables the seamless automation of the process and creates value by taking the pressure off human resources. For businesses that process a lower number of requests, our online Partners platform provides cost-effective access to our suite of world-class solutions on either a subscription or pay-as-you-go basis. 

To find out how we can help your business seamlessly meet its due diligence requirements, contact our team here. 

Types of KYB Checks

KYB checks encompass a range of different protocols and checks that are designed to verify the identity and legitimacy of the business, as well as check that the business is not under sanction and does not feature on any watchlists. 

There is a wide range of KYB checks that can be conducted, which include the following…

Business Registration Checks (CIPC)

Verifying the identity of a business, institution or organization is important to ensure its credibility and legitimacy. Failing to conduct such a check can expose a business to a heightened risk of falling risk to fraud and other financial crimes. In South Africa, a business registration check will pull data from the Companies and Intellectual Properties Commission (CIPC) database. 

A comprehensive business registration check should return information regarding the company’s registration date, enterprise name and the duration of registration, tax and VAT numbers, as well as all the current and past director details that are linked to the provided company registration number. 

Business registration checks are an important tool for fraud prevention and risk mitigation. By gathering the information provided by a business registration check, a business can assess the legitimacy of a company and scan for important red flags that represent a heightened level of risk, thereby empowering the business to make informed decisions before proceeding with any transactions or relations. 

Company Account Verification Services (AVS)

Account Verification Services (AVS) are an important tool for establishing the legitimacy of a company. 

Furthermore, company AVS checks are sometimes required by law as part of national AML/CFT legislation. In such instances, failure to comply with AML/CFT requirements can lead to harsh legal penalties. 

A comprehensive AVS check will confirm the validity of the bank account number provided by the company, as well as return detailed information concerning the full account details and type of account, the company name and the company registration number that is linked to the account details provided.  

AVS checks are also an important tool for fraud prevention and risk mitigation. As fraud schemes grow more complex, fraudulent businesses employ increasingly complex tactics to appear legitimate – for example, a recently opened account is a common yet serious red flag. By conducting an AVS check, a business can assess the legitimacy of a company and scan for red flags, thereby empowering the business to make informed decisions and reduce the risk of falling victim to advanced fraud schemes. 

Company Credit Report

Assessing a company’s credit score is an important step in verifying its legitimacy and credibility.

When conducted properly, a comprehensive company credit report should return a credit summary of all associated directors, as well as a calculated company risk score that takes several factors into account in order to generate a detailed and accurate assessment of the credit risk level of a company. 

As part of their national AML/CFT legislation, many countries legally obligate businesses, institutions and organizations to conduct detailed credit assessments before engaging in a wide variety of transactions – in South Africa, Accountable Institutions (AIs) are subjected to an array of such regulatory compliance obligations. 

Furthermore, as with company registration checks and company AVS checks, company credit reports are an important tool that a business can use to scan for red flags and mitigate the risk of fraud. 

Company Sanctions Check 

It is important to check whether a business is under any sanctions, features on any watchlists, or is politically exposed. Failing to conduct a sanctions check can have serious consequences and has the potential to cause serious harm to a business for several reasons. 

Firstly, conducting business with an organization that is under sanction can put your business in serious breach of the law. If a business is found guilty of violating sanctions, regulators and law enforcement can impose strict penalties and costly fines, or even impose new sanctions on the business itself as punishment for violating sanctions law. 

Secondly, conducting business with a company, institution or organization that is politically exposed or has a lot of adverse media published about it risks exposing a business to controversy and public fallout that can cause serious harm. By conducting a sanction check, a business can know exactly who it is about to go into business with and therefore make informed decisions about whom it associates with. 

KYB in a Risk-Based Approach 

Because South Africa operates a Risk-Based Approach (RBA) to money laundering regulation, it is the responsibility of the Accountable Institution (AI) to identify risks and take the necessary steps to mitigate those risks. Once the AI has finalized its risk management strategy, it will be presented to the Financial Intelligence Center (FIC) for approval. 

Because South Africa applies a risk-based approach, and because every business must create its own risk management strategies, exact compliance requirements and tools for risk mitigation will vary. This variance depends on the AI’s categorization (e.g., asset manager or FOREX), as well as how securely an AI wishes to mitigate risk above and beyond what the FIC requires.  

It is the responsibility of the business to create strategies that can properly assess risk and effectively mitigate risk should it arise. For example, should a KYB check reveal that a business partner is politically exposed, it is the responsibility of the business to employ effective strategies that can mitigate that risk in accordance with regulatory compliance obligations.

In South Africa, certain businesses, institutions and organizations are designated as Accountable Institutions (AIs). By law, AIs have their interactions with customers governed so as to mitigate the threat of money laundering. 

Know Your Business (KYB) Services South Africa 

As South Africa’s leading provider of identity verification, due diligence and risk management solutions, ThisIsMe provides world-class KYB solutions that can help your business secure its transactions and verify whom it does business with. To experience our full suite of solutions and find out how we can serve your business, contact our team here.