What is Know Your Business Verification? How Does it Help Bank In Preventing Fraud?

Everyone is talking about the new emerging forms of cyber threats. Today’s digital world is fraught with fraud and identity theft. As a result, banks need to monitor and verify their customers more than ever before. Know Your Business verification helps financial institutions to understand the business and its controlling parties.

KYC has become an essential part of many financial services businesses. It helps in identifying potential risks for banks and other financial institutions. Know Your Business verification is a process to identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank like obtaining a loan, investing, etc.

Banks that offer investment products need to know their clients well because they are more vulnerable to fraud if they do not conduct sufficient KYC checks on their customers. So let’s explore further…

What does Know Your Business Mean?

KYC stands for “Know Your Customer”. Know Your Customer has become an essential part of many financial services businesses because it helps in identifying potential risks for banks and other financial institutions. It helps banks to understand the nature of their customers’ relationships. Types of products and services used by the customers, their source of funds, and their financial condition, including the adequacy of the assets they hold to cover their obligations to the banks.

KYC helps banks and other financial institutions to verify the identity of their customers, understand the nature of their business, and assess the customer’s financial condition. It also helps them to identify any potential money laundering or terrorist financing activities. We can say that Know Your Customer is a concept where the business owner is required to verify their identity and source of funds.

How does KYC Help Banks Preventing Fraud?

Banks that offer investment products need to know their customers well because they are more vulnerable to fraud if they do not conduct sufficient KYC checks on their customers. KYC helps banks to identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank like obtaining a loan, investing, or other financial services.

By conducting sufficient KYC checks on customers, banks can identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank like obtaining a loan.

This helps banks to understand the nature of the customers’ relationships, the types of products and services used by the customers, their source of funds, and their financial condition, including the adequacy of the assets they hold to cover their obligations to the banks.

What is the Difference Between KYC and Know Your Business?

KYC stands for “Know Your Customer”, which is a process to identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank like obtaining a loan, investing, etc. Banks that offer investment products need to know their customers well because they are more vulnerable to fraud if they do not conduct sufficient KYC checks on their customers.

KYC helps banks to identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank like obtaining a loan, investing, etc. Know Your Business is a process to identify the controlling parties of a business, including the identity and background of the owners, directors, and key management personnel.

How to Perform Know Your Business Verification?

A bank will first identify the nature of the relationship and then decide whether to conduct Know Your Business verification. Most banks follow a standardized process to conduct KYC and KYB procedures. KYC is the initial process for identifying the customers and KYB is done for the controlling parties of a business. KYC is primarily based on the customer’s information provided in the account opening form.

A bank may ask its customers to provide the following information during account opening or at any time while operating an account. These details may include the source of funds, reason for opening the account, occupation and income, residence and residential address, and details of beneficial owners. KYB is primarily based on information obtained from public records (e.g., company registration records, land title records, etc.) However, it is important to note that KYB verification may not be sufficient to comply with the new Know Your Business (KYB) rules. The new rules require the banks to identify the beneficial owners of an entity that is opening a bank account or seeking another type of relationship with the bank.

Conclusion

Know Your Business is an important process to identify the controlling parties of a business, including the identity and background of the owners, directors, and key management personnel. The process of KYC helps banks to understand the nature of their customers’ relationships, the types of products and services used by the customers, their source of funds, and their financial condition, including the adequacy of the assets they hold to cover their obligations to the banks.

The new emerging forms of cyber threats have necessitated banks to monitor their customers more than ever before. Know Your Business verification helps financial institutions to understand the business and its controlling parties.

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