The onboarding journey serves as the launching point for a company’s relationship with its customers. It’s also where companies can most effectively prevent fraud and mitigate credit risks.
For financial institutions, as well as companies in sectors such as telecommunications, law, real estate, professional services and trade, the Know Your Business (KYB) and Know Your Customer (KYC) processes are essential first lines of defence to weed out high-risk bad actors with malicious intentions.
Part of the customer onboarding process, KYB and KYC procedures involve a series of robust verification measures to authenticate the identity of entities or persons. For example, by tracing an entity’s legal structure, financial standing and ultimate beneficiaries during the KYB process, companies can validate the legitimacy of corporate customers.
The success of any business relationship is built on reliability. While customer acquisition is vital for business growth, having the right kind of customers is just as important. Securing trustworthy customers with no propensity for fraud and with low credit risks is critical for long-term business growth.
Through KYB and KYC procedures, companies can find out whether potential customers have participated in illegal financial activities such as tax evasion, money laundering, identity theft, terrorism financing or corruption. Should red flags be discovered, companies can take swift action to reduce exposure and address risks.
Navigating regulatory obligations
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The screening of new customers protects companies from financial and reputational repercussions caused by non-compliant activities. In industries such as finance, this due diligence is mandatory as a part of regulatory compliance obligations.
Ranked as the top financial centre in Asia Pacific in the March 2023 edition of the Global Financial Centres Index, Singapore has stringent Anti-Money Laundering (AML) rules to prevent and detect financial crimes.
For example, the Notice to Banks on Prevention of Money Laundering and Countering the Financing of Terrorism (MAS Notice 626) is regularly updated to ensure that financial institutions implement appropriate due diligence and risk mitigation measures to combat the illicit flow of funds.
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More recently, Singapore introduced AML regulations to the property sector. Developers will now have to conduct more stringent due diligence checks on property buyers to prevent money laundering through real estate.
Access to up-to-date information is essential
The pandemic has led to a surge in online transactions and adoption of digital payments. This trend is set to continue, with online banking penetration in Singapore expected to reach 87% by 2028, according to Statista.
While the digital era offers consumers greater convenience, it also complicates the fight against fraud as cybercriminals use increasingly sophisticated tactics to exploit digital channels for illegitimate gains. This underscores the importance of access to reliable and up-to-date information on companies and individuals before onboarding them.
However, traditional KYB and KYC processes can be intricate and cumbersome. Pulling information from diverse sources such as public business records, sanctions lists and ultimate beneficial owner data can be time-consuming, especially if this is performed manually. Inaccurate or insufficient data sources can also result in flawed decisions.
While companies can tap on public portals such as ACRA Bizfile searches, it is essential to go a step further in order to build a comprehensive and in-depth profile of potential customers.
Business information services provide critical business intelligence for smarter decision making
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This is where business information services can bridge the information gap as they provide actionable insights that can facilitate informed decision-making.
All-in-one business information reports aggregate information from public and private sources, providing a comprehensive overview of a customer or business partner’s operations, profitability and stability. They contain multi-faceted information in the form of financial statements, legal and shareholding structure, key management, operational information and payment track records - all in one place. These reports may also incorporate risk indicators such as credit scores or financial stress scores.
By leveraging business information reports and data-driven tools, companies are able to obtain a holistic picture of the credit risks associated with potential customers. Not only that, business data and analytical insights also allow companies to evaluate the credibility of other parties such as suppliers, business partners or M&A targets.
While business information reports can play an important role in facilitating and accelerating KYB and KYC onboarding, this is just the starting point of the customer journey. Companies still need to maintain a vigilant approach towards risks, beyond the initial KYB and KYC phase.
Updated in real-time to reflect changes in shareholding and ownership as well as other financial aspects, business information reports are a key facet of any ongoing monitoring system to manage risk and exposure. They allow companies to not only investigate the credentials of potential customers during the onboarding phase but to also keep tabs on existing customers.
Ultimately, companies need to be constantly vigilant to minimise the risk of being exposed to unreliable clients and partners. That is why access to reliable, timely and rich business information is vital for business risk mitigation.
Simone Lovati is the managing director for Asia at CRIF
