KYC in the onboarding of new customers
Hello, I would like to open a business account…
…which sales representative doesn't love hearing this sentence? Whether it's an inquiry about a checking account, insurance, or a company car: when the customer closes the deal "threatens", Ideally, it should be done quickly.
But beware: Before any quick deal, certain obligations must be met and potential customers thoroughly vetted. We explain why and what such vetting entails in today's article.
Why do I need to check my customers?
The obligation to check your customers is regulated by various laws and can vary depending on the country and industry. In our case, the money laundering law forms the basis. Obligated parties under the Money Laundering Act such as banks, insurance companies and Real estate agents: Companies must identify their customers and check for potential risks before concluding a business transaction.
Because: Only those who know their customers well can recognize suspicious behavior early on. Furthermore, high fines are threatened for failure to comply with these obligations.
We call this verification process KYC. KYC stands for "Know your customer".“and serves to ensure that companies do not support illegal activities such as money laundering or terrorist financing.”
How KYC works in the onboarding of new customers is working
The first step in customer onboarding is collecting data such as personal information, company name, address, and company headquarters. While this data used to be gathered directly from the customer using lengthy questionnaires, today this process is almost entirely automated.
This is based on data obtained from the market. For example, from the commercial register, balance sheets, and shareholder agreements. Companies like the SCHUFF and Dun & Bradstreet provide a lot of data about future customers.
By the way: In KYCnow receive national Data from over 68 million natural persons and 6 million legal persons as well as over 367 million international data points.
Who owns the money?
Once all the basic data has been collected, more in-depth checks are necessary. An important point is identifying the so-called beneficial owners. In other words, who in the company "owns the money." And that isn't necessarily the managing director.
The beneficial owner is a natural person who owns or controls the company. It can also be a natural person on whose behalf a transaction is carried out and a business relationship is established.
How do you determine the beneficial owner?
In short: One checks who owns how many shares in the company – possibly also indirectly through other companies, so-called intermediary companies.
This audit examines the company's interconnectedness. Who are the top management? Who holds what percentage of the shares? According to the German Money Laundering Act (GwG), a beneficial owner is defined as someone who owns more than 25% of the company's shares.
In KYCnow We represent this as an interrelationship diagram, which breaks down the company shares in detail. The advantage: Once you understand and positively assess these interrelationships, you can also find sales opportunities within them. After all, the affiliated intermediate companies are also potential customers.
How trustworthy are the people in the company?
The identified individuals will now be examined more closely. This includes not only the beneficial owners, but also appearing persons such as managing directors or shareholders. Keyword: name screening.
The process checks whether the individuals are on worldwide blacklists, watchlists and sanctions lists, or have a so-called PEP status.
Sanctioned persons
If associated individuals are on sanctions lists, in the worst-case scenario I may not even be allowed to accept the requesting company as a customer – meaning I cannot open the account. Background: Those obligated under the Money Laundering Act (GwG) share responsibility for ensuring that sanctions are enforced and that sanctioned individuals are excluded from the economic cycle.
Especially since the beginning of the Russia's war against Ukraine are Sanctions during KYC checks The focus has shifted to sanctions lists worldwide, which are overflowing – making manual checks impossible. Digital tools like KYCnow help identify sanctioned individuals at the touch of a button and with up-to-the-minute updates – enabling quick and crucial decisions.
Politically Exposed Persons (PEPs)
With Politically exposed persons In short, PEPs are individuals who hold or have held influential public office. Since PEPs often make decisions that secure important contracts and government funding for companies, caution is advised.
Doing business with PEPs is not prohibited – however, stricter due diligence requirements apply. The sources of PEPs' assets must be identified. Transactions must be thoroughly examined, and personal data must be continuously updated.
A comprehensive overall picture of the customer through KYC
With all this data, the goal is to create a complete picture of the customer and answer the question: Do I want and am I allowed to have this company as a customer?
If all checks are "green," the path is clear for closing the deal. "Yellow" customers require closer scrutiny. "Red" cases usually result in the deal being rejected.
With all these points that need to be considered and checked during onboarding, the question arises as to how long this entire process takes. In the customer's interest, the KYC check should be completed as quickly as possible. Nobody wants to wait weeks for a new account, and the competition is often just a few clicks away.
The KYC file in just 60 seconds – with KYCnow
One thing is clear: Without automated and digital support, a KYC process is no longer possible today – or at least highly inefficient. And since every second counts, companies obligated to do so should rely on digital solutions.
With KYCnow you create A KYC file in just 60 secondsIn addition to the master data, the interrelationships and a name screening, all relevant documents and register extracts are also downloaded.
All information and documents are stored centrally and in an audit-proof manner in KYCnow. Our tool can be used both as a standalone platform and as an API connection directly into the company system.
Are you interested in KYCnow? We would be happy to present our solution to you in a personal meeting. Schedule your introductory appointment here.
Roczniewski