KYC: A fundamental pillar of identity verification
Understanding your customer, or KYC, has always been a crucial part of how financial institutions handle risks. KYC processes revolve around gathering and verifying customer data to confirm their identity. This helps to check any potential risks tied to that client. It's a necessary step in the fight against money laundering, terrorist financing, and other illicit activities.
KYC typically involves the verification of ID documents like passports or driver's licenses, proof of address, and additional information. The requirements change based on location and business requirements. These steps help to make sure businesses are dealing with real, legitimate individuals and staying on the right side of the regulatory rulebook.
UBO verification: Discovering the ownership structure
On the flip side, Ultimate Beneficial Owner (UBO) verification dives deeper into the ownership structure of a company. UBO refers to the individual who ultimately owns or controls a business, either directly or indirectly. The main goal of UBO verification is to unmask the true owners behind a business. It adds an extra layer of transparency and risk mitigation.
Unlike the basic information collected in a standard KYC process, UBO verification goes the extra mile. It seeks to pinpoint individuals who hold significant control, even if they aren't listed as legal owners. This becomes crucial in situations where complex ownership structures, trusts, or nominee arrangements might conceal the true beneficiaries.
KYC vs UBO: What are the key distinctions?
Scope of information
The goal of both KYC and UBO verification is to verify a set of information. Some data like name or address is part of both these processes, but there are also a lot of details specific to each procedure. KYC mainly focuses on verifying the identity of the customer, ensuring compliance with the baseline legal requirements. Whereas UBO verification is more exhaustive and deals with identifying the ownership and control structure of the business. Thanks to that, you can unveil the actual decision-makers behind the scenes.
Purpose
KYC is a broad process used for identifying customers and assessing their risk profiles. Ultimately, it helps to make sure a business complies with AML and CTF regulations. UBO verification, even though on the surface might seem similar to KYC, focuses on business owners. More precisely, it aims to identify those with significant influence over a business, addressing concerns related to corporate transparency and potential misuse.
Complex Ownership Structures
KYC may not be the right process to reveal the intricate layers of ownership structures. Especially in cases involving holding companies, subsidiaries, or trusts. In fact, KYC process rarely provides any information related to ownership. UBO verification, on the contrary, is designed to navigate through complex ownership webs. It ensures a thorough understanding of the ownership dynamics within a business, which is beyond the scope of KYC.
Regulatory Compliance
While KYC is a mandatory requirement for businesses to comply with a variety of regulations, UBO verification complements that process by addressing specific regulatory mandates. These may relate to corporate transparency and disclosure of beneficial ownership.
How Dotfile can help you verify clients?
Dotfile is an end-to-end business verification platform that streamlines KYB and AML processes. With a host of innovative features, we allow businesses to instantly perform due diligence, risk assessment, or re-verifiation procedures. Improve internal operations by automating KYB and UBO verification and reduce repetitive manual reviews. Create a smooth onboarding experience for your clients with our white-label solution, accelerate account opening, and ensure regulatory compliance anywhere in the world.
KYC vs UBO verification: Which one to choose?
Despite similarities, KYC and UBO verification are two distinct processes used for different purposes. KYC aims to verify individual clients who don’t represent a business entity, e.g. an individual applying for a personal bank account. On the other hand, there's a UBO verification that includes some of the steps usually performed as part of KYC, but also requires extra steps related to identification and verification of the ownership structure. Each process has its own goal and helps to comply with relevant regulations. The steps included or checks required often depend on the jurisdiction or business needs. Businesses looking for a verification solution should understand the scope of its capabilities and how they can contribute to legal compliance. Reach out to our team to find out more about Dotfile’s verification solution.
