Why KYB is as important as KYC to prevent fraud

While many in the public sector undertake know your citizen (KYC) due diligence, many aren’t as aware of the equally important know your business (KYB) checks. In an age of increasing fraud it’s particularly important that they are dealing with a legitimate organisation. Barley Laing, UK managing director at Melissa, investigates the importance of undertaking KYB, alongside KYC, for the public sector.

Posted 21 August 2023 by Christine Horton

Many public sector services are now conveniently available online. Unfortunately, with fraud on the rise, this convenience also comes with some risk.

While the growth in fraud has prompted numerous organisations to employ know your citizen (KYC) strategies, it is only part of the solution. Know your business (KYB) checks are equally important and should be performed in tandem with KYC to combat fraudulent activity. KYB checks highlight what sort of company you are dealing with and whether they are, in fact, a legitimate business, sanctioned, or managed by bad actors. This vital insight can reveal the very real threats of conducting business with an organisation.

For a good example of why KYB is so critical look no further than the Bounce Back Loan Scheme available to businesses during Covid. Of the £47 billion worth of Bounce Back Loans, £17 billion is already expected to be lost with £4.9 billion of that figure attributed to fraud. What the government termed ‘light touch’ checks for those businesses applying for loans during Covid led to massive, costly fraud.

Why deliver KYB and KYC checks

Undertaking KYB screening enables organisations to fully understand the risks posed by new and existing business users and suppliers. This is particularly beneficial because fraud is often committed by shell companies or organisational structures that just don’t exist in reality, so KYB checks can greatly mitigate that type of fraud from occurring. Also, it will help to prevent financial crime, such as money laundering and terror financing, which could result in significant reputational damage.

It is worth noting that undertaking best practice due diligence by delivering KYC and KYB screening not only reduces the opportunity for fraud but has many other advantages. These include the ability to personalise communications, improve the delivery of services and the overall user experience, and provide a competitive advantage. KYC also facilitates operational efficiencies. These are all important factors, particularly during a period of high inflation and economic uncertainty.

How to undertake effective KYB screening

The main difference between KYC and KYB checks lies in the information needed to verify identity. With KYB it’s not simply a case of verifying a name, address, date of birth, for example, as is done for an individual, although this data is obviously important for both KYC and KYB checks. For a reliable and cost-effective approach to KYB screening it’s advisable to cross-check a company name, address, business registration number, and operational status. Those who want to undertake a more in-depth KYB screening process, which includes identifying any person with significant control – the beneficial owners, the company’s annual returns, or financial statements – must weigh the benefits against the often significant cost of doing so.

Use a SaaS eIDV platform with integrated KYB and KYC functionality

To deliver effective KYB and KYC checks globally, it’s best to source a comprehensive software-as-a-service (SaaS) electronic ID verification (eIDV) platform that provides both. With the growth in fraud, these tools are becoming increasingly popular. They are easy to deploy, scalable, and support real-time cross-checks against an individual’s contact data – all done as an online application or sale is completed to ensure the user experience isn’t negatively impacted.

These tools must have access to reputable global data streams, such as government agency, credit agency and utility records, to match the name, address, date of birth, email, or phone number, along with recognised sources of business data, such as from a business registry or regulator, like Companies House. The platform should also offer mortality screening checks to effectively confirm the ID of an individual and be able to highlight any errors in the data, such as a typo in the address, which can easily be corrected.

It is also advisable that the service provides access to worldwide sanctions and politically exposed person (PEP) data, as well as adverse media checks of both individuals and businesses to provide a full ID verification service. This way, tight budgets can be protected against scammers, while also supporting best practice KYB and KYC.

It is clear with fraud on the increase that those in the public sector can no longer ignore KYB and KYC. They must be implemented in tandem as a matter of course, ideally via a full-service SaaS ID verification platform.