4 common KYB challenges in payments and how to solve them

kyb challenges

In recent years, the payments services landscape has evolved significantly. And yet, with a changing landscape, comes changing levels of risk. In 2019/20, almost a third of suspicious activity reports relating to suspected criminal funds came from the electronic payment sector. 

With more consumers and businesses than ever before now relying on digital payment service providers and processors to send and receive money, the sector has been subject to an uptick in scrutiny from the FCA.

When coupled with what the FCA identified as ”insufficiently robust controls” in combatting financial crime, firms across the industry are coming under increasing pressure to tighten their anti-money laundering controls.  

Payments firms are required by law to ensure they are not providing services to financial criminals or allowing dirty money to move through their platforms. 

Without proper measures in place, you’re not merely risking a business deal; you’re exposing your entire operation to significant financial and reputational damage.

One such measure is the need for robust verification processes like Know Your Business (KYB) checks, a process that plays a critical role in ensuring the legitimacy and security of payments. These processes are designed to identify and verify businesses and the individuals behind them, evaluate risk, and monitor for any adverse changes. 

But embedding great KYB processes in your payments firm isn’t just a matter of compliance‍ – effective KYB also protects your business by ensuring that you are only dealing with genuine companies and not onboarding customers outside your risk appetite.

What is KYB and why are checks needed?

Know Your Business (or KYB for short) is the mandatory method by which payments firms and other regulated financial institutions get to know their corporate clients to ensure everything is above board in order to minimise the risk of financial crime, money laundering or other fraudulent activity taking place.

An evolution of Know Your Customer (KYC) practices, KYB checks allow firms to verify business registration details, ownership structures, financial health, and potential reputational risks, making them a critical step in ensuring secure and compliant business relationships within the payments and wider financial service industries.

KYB challenges for payments firms

Naturally, no company wants to fail in complying with KYB requirements, however conducting KYB checks can be incredibly complex. Checks must be suitably comprehensive, detailed, and rigorous for compliance teams to track and understand complex corporate structures, the legitimacy of the people who control them (PSCs), and who ultimately benefits (UBOs) financially from their activities. 

A task only made more difficult when criminals are adept at muddying the waters, creating complex corporate layers of shell companies, obscuring beneficiaries, and concealing the source of funds. At times, unravelling corporate webs to identify UBOs is akin to finding a needle in a haystack.

Below, we take a look at four of the most common challenges faced by payments firms when conducting KYB checks and how you can solve them. 

Challenge #1: Identifying and verifying UBOs

Identifying and verifying UBOs as part of KYB checks is a crucial step for payments firms to ensure regulatory compliance and manage risk effectively. The very nature of operations means that payments firms often handle large volumes of transactions, move significant sums of money, and interact with businesses from across the globe, making them prime targets for illicit activities and the funnelling of dirty money. 

One of the biggest challenges associated with identifying and verifying UBOs is the complexity of corporate structures. Many businesses, especially large corporations and international firms, have intricate and multi-layered ownership structures. While an entirely legal practice, these structures often span multiple jurisdictions, making it difficult to trace true ownership back to a single, legitimate UBO. A challenge that is only exacerbated when bad actors actively add layers of complexity and obscure true owners in knowledge of their criminal backgrounds, sanctioned status or association with terrorist financing.

What’s more, the dynamic nature of ownership poses an ongoing challenge. Ownership structures can change frequently due to merges, acquisitions and changes in beneficiaries. It is crucial that payments firms continuously monitor corporate clients in order to stay on top of any changes to beneficial ownership that could impact a business’ risk profile. 

How can you solve this?

The complexity of corporate structures, intentional hiding of ownership and dynamic nature of ownership makes identifying and verifying UBOs a challenging task. But there are solutions. 

Automated KYB technology can do much of the heavy lifting, scouring global databases, registries and corporate data sources to streamline the identification and verification of UBOs.These platforms can automatically gather and analyse vast amounts of information from various sources quickly and accurately, saving valuable time and effort compared to a manual research process while enhancing overall compliance and risk mitigation efforts. 

This automation speeds up the process of identifying UBOs by quickly analysing large datasets, flagging discrepancies or risk factors, and uncovering hidden relationships that might contribute to increased risk.

Challenge #2: Managing cross-border compliance 

For payments firms operating on a global scale, managing cross-border KYB compliance is incredibly challenging due to the complexity and variability of international regulations. And yet, in order to remain regulated and operational in most jurisdictions, payments firms must navigate and implement these different requirements to ensure they meet the specific standards of each country – a task which can be complex and time-consuming. 

The value of cross-border payments is estimated to increase to over $250 trillion by 2027 according to the Bank of England. With soaring levels of money being moved internationally, effective KYB due diligence plays a crucial role in helping businesses detect and prevent cross-border payments fraud

DIfferent countries have different KYB standards which can vary widely in terms of documentation, processes and verification methods required. Jurisdictions may even have different definitions of key KYB elements such as what constitutes a UBO or PSC. 

To boot, gathering the necessary business and ownership data as part of the KYB process can be transparent and accessible in one country, but outdated, limited, or difficult to obtain in others. This inconsistency only further complicates the KYB process and can lead to compliance failings or errors during the onboarding process. 

How can you solve this?

Cross-border compliance can be complicated, especially when payments firms rely on outdated, manual processes to research, vet and verify corporate clients. By automating the business verification process, you can effortlessly mitigate risk and meet global compliance requirements in a matter of seconds. 

Automated KYB technology can be configured to accommodate and integrate the specific regulatory requirements of different countries, providing a central solution for global compliance management. Platforms automatically update in line with regulatory changes and ensure that the required information, documentation, and verification methods are met for each jurisdiction within which your firm operates. 

With access to multiple data sources and global registries at the click of a button, you can screen international clients and individuals through digital and automated workflows for KYC/B & AML checks, ID verification, and onboarding, wherever your clients are based. KYB platforms aggregate data from various global sources including corporate registries, financial databases, and public records, compiling the information you need in an easy-to-consume, single source of truth. 

By automating these processes, payments firms can reduce the risk of non-compliance and streamline the onboarding process. With match rates in NorthRow’s WorkStation as high at 95%, the majority of KYB checks can be processed automatically, allowing compliance teams to focus on more strategic, higher value activities.

Challenge #3: Keeping up with regulatory changes

KYB regulations are frequently updated to address emerging risks and evolving financial crime tactics. This rapid pace of change requires payments firms to constantly monitor and interpret new regulations, which can be labour-intensive and complex. What’s more, ensuring compliance processes are subsequently updated in line with the evolution of regulation is another challenge unto itself.

Oftentimes, AML requirements change rapidly, especially when in response to geopolitical unrest such as the war in Ukraine. This makes the need to understand and implement new processes more fast-paced than routine updates, leaving payments firms open to oversight, increased risk, and non-compliance. 

A round-the-clock task, monitoring for any amendments, updates, or entirely new legislation, evaluating how it will impact your business, the processes that are affected, and the resources needed to implement change can be overwhelming – especially when firms are relying on manual research, outdated resources, or word of mouth.

How can you solve this?

For compliance teams, subscribing to regulatory update services and newsletters, monitoring guidance for regulatory bodies’ updates such as the FCA’s Dear CEO letters, making use of content monitoring tools such as Google Alerts, and attending conferences and industry webinars can be a great way to keep abreast of upcoming changes to legislation and requirements that will impact their business. The earlier teams can get information on looming regulatory change, the sooner they can analyse its impact and assess the process changes that may be required to remain compliant.

But, using automated KYB tools that automatically track and integrate regulatory change from across multiple jurisdictions is a smarter choice for teams. With a platform that is always updated in line with regulatory developments, changes in guidance, and reporting requirements as they happen, tracking and monitoring changes in AML regulations and guidance issued by regulatory authorities becomes simpler and enables compliance teams to ensure their processes are adapted accordingly to reduce any risk of non-compliance.

Challenge #4: Balancing compliance and customer experience

Balancing KYB compliance and customer experience during the onboarding process can be a tricky task. As part of AML requirements, KYB checks typically involve rigorous verification, screening, and information gathering processes, however the complexity and thoroughness required for KYB can be time-consuming and cumbersome for corporate customers. 

The detailed information and documentation required for KYB can create a significant barrier for some customers, leading to a slower and more complicated onboarding process for legitimate corporate accounts. And yet, such thoroughness is critical to ensure compliance checks are sufficiently rigorous to detect and avoid money laundering, fraud, and financial crime from occuring within your payments firm. 

The balance comes in creating a process with sufficient friction for higher-risk or potential bad actors to prove their legitimacy but smooth enough for legitimate clients that represent low/no risk. 

How can you solve this?

Using KYB onboarding software streamlines the data collection process with functionality that can gather all the necessary information from multiple sources in a matter of seconds. These platforms can analyse the data and information gathered automatically, flagging any discrepancies or risk factors that may fall outside of your firm’s appetite, ultimately reducing the burden on customers to provide extensive documentation to prove their legitimacy. 

What’s more, KYB software helps your firm to implement risk-based approaches to onboarding, adjusting the level of scrutiny based on the risk profile of the business. Low-risk customers can undergo faster, simpler checks, while higher-risk customers receive more thorough vetting.

Modern KYB platforms like WorkStation are designed to seamlessly fit into your onboarding process to ensure a quick and easy, automated process. To undertake a comprehensive KYB check using WorkStation, all you need is a company name or tax number – the system will do the rest, collating key documents, financial data, directors, UBOs and much more before providing you with an at-a-glance red, amber or green risk rating for each corporate client. 

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