B2B Risk Management Awareness

by | Feb 20, 2020 | Blog

Businesses develop relationships every day to fulfil the needs of their clients. Transparency in those relationships needs to be maintained and due diligence on prospects is a vital function that ensures stability and encourages growth. However, many companies overlook the need to be cautious concerning working with entities that are related to them and create a network of connection.

B2B Relationships

B2B’s often overlook their interconnected relationships when performing risk management assessments. The prospects in B2B relations are equally risk-prone compared with those in a B2C scenario.

A B2B relationship means:

  • Partnerships
  • Goodwill affiliations
  • Businesses that are your customers
  • Suppliers
  • Mergers
  • Vendors
  • Transporters
  • Online merchants

Every business is bound in B2B and B2C relationships simultaneously. It is because of this intricate network of connections between businesses that understanding the risks that other businesses pose is vital to the success of your business.

That is why it should be a mandatory function of your business to perform KYB (Know Your Business) verifications on your prospects, along with KYC (Know Your Customer) verifications on your customers, as individuals.

What is KYB?

KYB is the practice of due diligence performed on the businesses in a B2B relationship with your company. KYB, along with fraud prevention practices, are regulatory obligations of enterprises.

KYB verification is a thorough screening of a company and the people related to it. Commonly KYB verification includes:

  • Verification of registration documents of a company.
  • Background screening (verification against blacklists).
  • Anti Money Laundering (AML) screening of Ultimate Beneficial Owners of a company.
  • AML verification of the business.

Performing KYB Screening

KYB screening can be performed manually or through a KYB screening solution, which is considered the most viable option. Such solutions perform online KYB screening on the selected businesses in real-time and provide useful risk management insights to cover against the risk, adopting a proactive approach. A KYB screening solution provides global coverage in verification services; a global risk cover that cannot be attained with manual verification.

It is possible to outsource screening and customised solutions to the needs of your business. Manual verification can be very expensive due to high salaries that need to be paid to verification experts, payments to access resources, such as blacklists data, infrastructure, and technological resources. Performing manual transactions also increases the chances of false-positive ratings and increase the time needed to perform verifications, which can demotivate business prospects.

Significance of KYB Screening

KYB screening ensures fraud prevention and productive regulatory compliance. Regulatory compliance helps businesses achieve credibility and goodwill in the business community. The better the rating a company has from authorities, the higher the business leads it attracts. Exceptional companies work to prevent unpredicted non-compliance fines.

KYB screening also helps businesses create a validated network. Fraud prevention is key to the development of secure global trade. Online trade means that businesses are not always meeting face-to-face, so risk screening is more important to the development of trust between B2Bs.

Brexit will change the landscape of AML compliance in the UK.

Businesses in the UK and the EU are yet to fully comprehend the fallout of Brexit. Ambiguity in the AML/KYC and trade regulatory landscape is likely to continue for some time.

Currently, the UK is following the AML/KYC regulations of the EU, and businesses are reporting to EU authorities, like Europol.

Brexit will ensure that the UK will change its regulations that were affiliated with the EU previously. The UK is expected to develop a new financial regulatory authority to regulate businesses. There is a need for strict security measures as the country is now exposed to a high risk of financial crime as a loophole in the regulatory landscape has left the UK vulnerable as it undergoes regulatory shifts.

How will businesses be affected?

Businesses operating in the EU will be required to change their AML compliance practices in alignment with new regulations imposed in the EU. This shift will change the compliance strategy and budgets of many B2Bs if they are required to register with the new financial regulatory authority of the UK.

Currently, the UK complies with the GDPR for data protection protocols. It is expected that the UK will continue to follow these instructions, but the supervisory authority will be from within the UK.

Implementation of AMLD5.

AMLD-5 was implemented last month. However, as the UK left the EU with no deal, there is a loophole in the AML regulations of the UK. The new rules require crypto exchanges and custodial service providers to register with their local regulator and demonstrate compliance with thoroughgoing KYC and AML procedures.

The loophole is likely to be exploited by money launderers and terrorist financiers. If the loophole is attacked, it will mean more risk of fraud for businesses in the UK. For this reason, online businesses with connections in the EU and the UK should be enhancing their risk screening protocols to ensure that their businesses are secure and validated. Without adopting the best-practise approach to KYB and AML regulations, business is vulnerable to having their credibility eroded and links weakened by unscrupulous actors.