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Wednesday, May 22, 2024

Everything You Should Know About Business Verification in Crypto Industry

Fintech has drastically transformed how the finance sector works. Financial organizations, specifically banks and cryptocurrency exchanges, have widely switched to digital customer onboarding solutions. This is also the need of the hour to combat financial fraud, scams, and crimes such as money laundering and terrorist funding. Crypto firms need to streamline their know-your-customer process. Simultaneously, they should also ensure efficient business verification through KYB or know-your-business procedures. 

What is KYB Verification?

A company verifies other business firms onboarded as clients through business verification services. KYB includes measures to acquire information about clients or business partners before they enter into a legal B2B partnership. It varies from know-your-customer because the latter only deals with verifying individual customers. However, both processes aim to eliminate the risk of money laundering and terrorism. In financial organizations like cryptocurrency firms, KYB is a mandatory process to ensure that the companies getting onboarded possess legally legitimate identities. Moreover, crypto platforms should be aware of potential threats, such as identity theft, fraud, and document forgery, to commit more heinous financial crimes. Thus, it is critical for counter-terrorism financing and anti-money laundering regulatory compliance.

Documents Required in Know-Your-Business (KYB) Procedure 

KYC focuses on collecting customers’ identity documents to verify their legitimacy during customer onboarding. Likewise, businesses should provide all the details related to them. Crypto firms should ensure obtaining a comprehensive set of data about the companies they onboard. The mandatory documents for know your business include the following:

  • Company’s legally registered name
  • Location 
  • Date of establishment
  • Complete information about the company’s directors
  • Knowledge about the company’s shareholders owning at least 25% of shares
  • In-depth data of the director and senior officials
  • Proof of income source

Ultimate Beneficial Owners in Know-Your-Business (KYB) Verification

The cryptocurrency platforms should also know everything about the ultimate beneficial owners (UBOs) of the businesses they take on board. UBOs are the primary individuals running the company and legally profit from it. Their verification during KYB is immensely significant because they own a company and are the key actors. Therefore, it is inevitable for cryptocurrency and other digital asset firms to conduct rigid scrutiny of UBOs to ensure their legal identity. Reviewing the UBOs lets them know if their business clients are linked to illegal monetary practices or are run by potential financial criminals.

Necessary AML/CFT Checks During Verification of the Business

The KYB onboarding process also includes checking the businesses against specific lists. It is a necessary measure to ensure that the client firms are not linked to unlawful activities. Moreover, it proves mandatory for compliance with anti-money laundering and countering terrorism financing benchmarks. A company’s beneficiaries, owners, shareholders, and directors are checked against the following lists.

  1. Politically exposed persons (PEPs): According to FATF, a politically exposed person or PEP is an individual holding a prominent and influential public position. Simply, a PEP is someone who is linked with a political affiliation. It is significant to check against the PEPs list because such persons usually pose a higher risk for potential financial crimes such as corruption and money laundering. 
  2. Global Sanctions: Crypto and digital asset companies should also examine the mentioned key individuals against lists of sanctioned persons, businesses, and countries for verifying a business. For example, they must be scrutinized against the grey and black lists the Financial Action Task Force provides. FATF is an inter-governmental regulatory body associated with the financial activities of countries and their influential people. The black-listed states and individuals are imposed economic sanctions and cannot engage in business relationships. 

This measure is critical in KYB procedures for abiding by the AML regulations because compliance failures lead to hefty financial penalties. According to a study by Poenmon Institute, over 4 million US dollars were lost due to noncompliance. Therefore, verifying companies by in-depth scrutiny is crucial for the crypto industry.

Know-Your-Business Solution Providers

The crypto industry possesses security gaps and weak apparatus for fraud detection. Thus, it has become a safe haven for financial criminals to launder money through crypto blockchains because of the anonymity in this industry. Companies can also commit illicit financial practices through illegal transactions. Hence, it is critically essential for crypto firms to seek adequate solutions for combatting this threat. Several SaaS providers offer their services to conduct secure and efficient know-your-business procedures. The KYB solutions enhance the business onboarding process and ensure fraud deterrence, identification of potential criminals, and, most significantly, AML compliance. 

In a nutshell, the know-your-business process is crucial for the cryptocurrency and digital asset industry for effective AML/CFT compliance.

Ahsan Khan
Ahsan Khan
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