The business world requires financial bonds to grow in the industry, but it is a challenging decision. While business onboarding, the verification of its legal status and financial report are necessary. The improper verification of the company may lead to severe consequences, including penalties and sentences. A business may be involved in illegal funding or other financial crimes, which are vulnerable to the partner company’s financing. Business screening is a reliable solution to evaluate third-party legitimacy. In this read, let’s explore why business screening is essential in making financial relations with reduced risks.
Business Verification Process
For business screening, Know Your Business KYB is the most effective method to verify the legitimacy of the counterparty. KYB process comprises business information gathering and screening against official registries’ databases. Evaluation of the ownership structure is a crucial component of business screening to ensure all shareholders are legal.
- Collecting Business Information
The business information, including the company name, address, mailing address, contact number, registration number, tax reference number and other data, is collected. Along with that, proof of address, tax records, annual reports, financial statements, and other industry-specific documents are collected. The business must ask the third party to submit the data to verify its legitimacy.
- Screening Business Data and Documents
In business screening, the business must collect data from the country’s public registries and regulatory bodies. The collected information is screened against the publicly available data. Along with that, the collected documents, including the business proof of address, tax record and financial statement, are screened. Most of the time, documents are not publicly available, and businesses have to pay the parent registry for access.
- Verifying Ownership Structure
The business must ask for a third party to submit the beneficial owner information, including all shareholders. The name, address, contact number, photocopies of the driver’s license, and other relevant personal information of the shareholders must be collected. The financial information of the ultimate beneficial owner, UBO, must also be collected and screened. This includes the capital, number of shares, designation and relevant documents.
- Conducting AML Checks
The anti-money laundering AML checks are a significant part of business screening. The primary goal of AML checks is to verify business compliance with AML laws. This helps to understand if a business complies with regulations or has violated laws at any time in history. Sometimes, the shareholders are sanctioned because of non-compliance with AML laws. If a business with high risk is onboarded, it is exposed to risks and other legal consequences.
- Enhanced Due Diligence
The business requires regular monitoring of the financial activities of partner companies. It involves keeping a check and balance on the company’s cash flow and frequently applying AML checks to the company. The periodic reviews about the company and shareholder financing help to detect suspicious activities. The ongoing adverse media checks are also an effective step in bsuiness due diligence. Furthermore, enhanced due diligence involves reporting to relevant authorities. So, the business partner finds help in mitigating and managing financial risks.
Significance of Business Verification
Business verification is the complete process of evaluating third parties’ legal status. The financial performance of the company is also inspected to build a secure relationship. This process involves understanding the business’s intended nature or purpose and ownership structure. All the shareholders undergo Know Your Business KYB checks to assess their legitimacy. The red flags are detected on time, which helps mitigate risk throughout the business relations cycle.
The business world is required to comply with anti-money laundering AML, counter-terrorist financing CTF and other regulations. While establishing relations with other companies, it is necessary to check third parties comply with regulations. Once the business ensures that counterparty complies with local and foreign laws, the financial risks are reduced. Hence, building legal bonds in business results in growth in the market.
Final Words
Business screening is the verification of the companies at the time of onboarding and throughout the partnership cycle. It is the way forward to establishing secure financial relations and risk mitigation. An organization must analyze the legal status and financial performance of the business. The data collection and screening help in assessing the partner companies thoroughly. AML checks while company verification helps businesses to stay compliant with national and international standard regulations. The identification of the red flags during the KYB process reduces future risks and threats. In the long run, authentic business-to-business relations are built, resulting in industry growth.