The cryptocurrency and virtual assets market has gained popularity within the past decade. Presently, there are about 6000 crypto firms worldwide as a result of the growing interest of consumers in virtual assets. However, this relatively nascent industry faces threats, mainly cyber attacks, from financial criminals. Likewise, money laundering has surfaced as one of the biggest challenges in the face of the crypto sector. Therefore, cryptocurrency exchanges are bound to execute all the necessary measures to combat the looming peril of money laundering and terrorist financing. KYB compliance is one of the mandatory actions every financial institute, including crypto firms, must take.
What is Know-Your-Business – A Comprehensive Overview
According to Statista, 56 countries have adopted cryptocurrency from 2019 to 2023, which displays its rising acceptance and global demand. However, the surging influx of investors and buyers of cryptocurrency resulted in regulatory loopholes and security gaps. Therefore, different states have passed legislation focusing on the virtual asset industry to include them under financial regulatory obligations. For example, the crypto exchanges and other asset platforms in the US are bound to comply with the FinCEN obligations. Thus, every digital currency company, like banks, must adhere to established anti-money laundering and counter-terrorism financing laws.
Streamlining the know-your-customer and know-your-business procedures is the need of the hour to achieve AML/CFT compliance. KYB compliance refers to verifying the businesses crypto exchanges take on board. Simply put, it is the same as KYC, but the difference lies in the client type. KYB aims to verify the legality of the business entities that use cryptocurrency, get access to exchange platforms for making crypto transactions, or convert fiat currency into crypto and vice versa. KYB compliance in crypto is the same as in other financial and non-financial organizations. Thus, it involves verifying documents proving the business’s legitimacy and its owner’s crimeless identity. In brief, KYB is critical to ensure security, transparency, scrutiny, accountability, and prevention of monetary fraud in crypto companies.
Significance of UBO & Business Credentials in Document Verification
Cryptocurrency organizations should acquire in-depth knowledge about the business during KYB verification to perform stringent anti-money laundering due diligence measures. The document authentication process for KYB compliance in crypto follows domestic and international regulatory standards. It includes the following necessary information and documents.
- An authentic business license issued by the government
- Records of financial activities
- Details of the top-tier leadership of that organization
- Data of the shareholders, having 25% shares in the company
Verification of the ultimate beneficial owner (UBO) is the most significant element in this process. UBO is the legitimate individual who owns the business enterprise and is the primary entity running it. The financial records, such as tax statements, money trails (if any), etc., are checked according to the laws to detect any anomalies or traces of money laundering. Every legally registered crypto firm must authorize an AML officer to verify the business credentials during KYB compliance procedures. The compliance officer should analyze the provided documents to identify any hints of falsification or forgery.
Automated Know-Your-Business (KYB) Solutions
The fintech industry has introduced ground-breaking solutions for financial fraud, identity theft, document forgery and money laundering challenges. SaaS companies provide automated solutions that are widely replacing outdated manual KYB processes, and the virtual assets sector should immediately adopt them to boost their security apparatus. Numerous reliable service providers offer personalized AI-powered software for seamless KYB compliance. Such state-of-the-art tools make know your business convenient and instant. Automated know your business (KYB) allows swift detection of false documents and is time and resource-efficient. Furthermore, AI-backed KYB solutions minimize the risk of human negligence. Therefore, crypto platforms should integrate automated tools to enhance their overall performance.
Enhanced Due Diligence: Corporate Verification KYB Checks Against Watchlists
Enhanced due diligence is performed during the perpetual or ongoing monitoring of clients as a part of AML/CFT checks for KYB compliance. In EDD, the client’s data is not just acquired and verified during onboarding, but it is also reviewed at regular intervals throughout the business relationship. The crypto industry must vigilantly monitor businesses to identify any deviations in their transactional activity.
EDD is a plan of action comprising screening companies and their owners in different global and domestic watchlists. They are checked and verified against FATF’s lists of sanctioned individuals, countries and jurisdictions, highlighting their risk potential. Likewise, they are also assessed according to the records identifying politically exposed persons. PEPs are influential public officer bearers or individuals having political associations. Cryptocurrency and other affiliated financial organizations should strengthen their enhanced due diligence process by seeking automated solutions from SaaS providers. Authentic and top-notch KYB compliance services automate the EDD. The AI-operated software tools enable crypto operators to verify business entities against major global and domestic databases within a few minutes. Therefore, digital EDD in KYB is vital to mitigate money laundering and terrorist funding.
In a nutshell, KYB compliance plays a critical role in the crypto and virtual asset sector. It eliminates the opportunities for illicit funds transfers by financial fraudsters and money launderers.