The Benefits of Adverse Media Monitoring for KYB
In this blog, we explore the role of adverse media monitoring in financial entities’ Know Your Business (KYB) processes, highlighting the potential it provides for risk identification, compliance with regulatory requirements, and enhancing overall risk assessment. We also introduce how the AI platform Owlin revolutionizes KYB processes by continuously monitoring millions of sources in multiple languages.
The Risk of Missed Risk Signals When Checking on an Interval Basis
During the KYB process, a business identifies and validates the ultimate beneficial owners (UBOs), shareholders, and suppliers, ensuring their legitimacy and integrity. When it comes to performing KYB checks, risk teams often perform these on an interval basis. They, for example, quarterly check public records and government databases, sanctions and watchlists, and adverse media via Google Searches. Moreover, risk teams often focus only on high-risk business relationships, leaving others (presumed less risky) with little attention.
Checking sources on an interval basis and via a risk-based approach can leave the company exposed to financial, environmental, reputational, or security risks for a prolonged time (or until the next KYB check is performed).
With interest rates rising and the looming possibility of a recession, monitoring third parties continuously has become increasingly crucial. In the realm of KYC, more than relying on traditional measures like checking politically exposed persons (PEPs), sanctions lists, and financial data is required, and comprehensive adverse media monitoring becomes apparent. Let’s explore a scenario to illustrate the potential risks of periodic KYB monitoring.
Suppose you are a financial institution periodically conducting KYB checks on your business relationships. During a routine review, you discover that one of your major suppliers, Supplier ABC, has been flagged in adverse media reports about cash flow problems or liquidity issues. However, since the last review was conducted several months ago, this development has gone unnoticed until now.
Due to the delayed detection of Supplier ABC’s adverse media coverage, you have unknowingly continued your association with a high-risk supplier for an extended period. This poses significant reputational and compliance risks to your company, as your association with a supplier that cannot fulfill its financial obligations becomes public knowledge. Moreover, there might be financial implications if legal actions are taken against Supplier ABC, affecting your supply chain and potentially disrupting your business operations.
If you implemented continuous KYB monitoring focusing on adverse media, you would have been alerted to Supplier ABC’s negative coverage in real-time. This would have allowed you to take immediate action, such as reassessing the association, implementing additional due diligence, or terminating the business relationship altogether. By relying solely on periodic reviews without robust adverse media monitoring, you inadvertently exposed yourself to undue risks and missed timely risk mitigation measures.
What Are The Benefits of Adverse Media Monitoring for KYB?
Adverse Media Monitoring involves systematically scanning and analyzing various news sources, public records, regulatory databases, and other relevant information to identify and evaluate any negative mentions or risk indicators associated with a business. If done properly, Adverse Media Monitoring can help companies identify risk, ensuring compliance with regulatory requirements and enhance risk assessment.
Adverse Media Monitoring for Risk Identification
Adverse media monitoring helps identify and flag any potentially risky or suspicious activities linked to a business. This could include news articles, legal proceedings, regulatory actions, or other public records that raise concerns about the business’s integrity, financial stability, or involvement in illicit activities.
Adverse Media Monitoring for Compliance with Regulatory Requirements
Adverse media monitoring assists businesses in meeting their regulatory obligations. Financial institutions and other regulated entities must perform due diligence on their business customers, and monitoring adverse media helps them stay informed about any negative developments that may affect their compliance with anti-money laundering (AML), counter-terrorism financing (CTF), and other regulatory requirements.
Adverse Media Monitoring Enhances Risk Assessment
By incorporating adverse media monitoring into the KYB process, financial organizations gain a more comprehensive view of the potential risks associated with a business entity. It provides additional context and data points for risk assessment, allowing financial entities to make informed decisions about onboarding or continuing business relationships.
Leveraging Technology to Monitor Adverse Media Continuously
Ideally, adverse media monitoring is not a one-time process but an ongoing activity. However, checking adverse media manually can be time-consuming, labor-intensive, and prone to costly errors. Therefore, financial entities should consider implementing smart technology tools into their AML/CFT infrastructure to overcome these challenges. This automation enables faster and more efficient adverse media checks, surpassing the capabilities of human compliance employees.
Companies can use technological advancements, specifically AI-based tools like Natural Language Processing (NLP). Using these tools, they can analyze large amounts of data from around the world. This allows them to quickly identify potential risks in real-time, regardless of the size or location of the entity. It also speeds up the onboarding process by enabling instant screenings, ensuring the timely completion of necessary checks.
Although adverse media screening alone may not provide all the required information, combined with mainstream due diligence and financial stability checks, it offers a holistic landscape view. This comprehensive approach ensures that any recent developments are captured before appearing in traditional outlets or between reviews.
Find Out What Owlin Can Do for You
Take control of your KYB process with automated media monitoring powered by Owlin. Owlin’s AI platform gives you access to real-time monitoring of over 3 million mainstream and niche sources in 17 languages. Our smart technology leverages natural language processing (NLP) to analyze and present relevant adverse media signals in graphs and alerts, focusing on what truly matters.
Discover the power of Owlin and revolutionize your KYB process. Mitigate risk, and enhance risk assessment and due diligence efforts. Contact us today to learn how Owlin can elevate your KYB process to the next level.
Frequently asked questions about KYB
What Is the Difference Between KYB and KYC?
Know Your Customer (KYC) and KYB are both sub-categories of Customer Due Diligence (CDD) and have similar objectives for financial entities: identify and investigate the business relationships they are (going to be) in and determine if they are genuine or being used to hide identities for illegitimate purposes such as money laundering, identity theft, and fraud. Additionally, there are differences between KYC and KYB regarding focus, the information needed to conduct the processes, and compliance requirements.
What is The Focus of KYB?
KYB identifies and validates a business’s ultimate beneficial owners (UBOs), shareholders, and suppliers, ensuring their legitimacy and integrity before considering the company’s customers. On the other hand, KYC focuses on establishing individual customers’ identities, prioritizing their verification and authentication within the business context. KYB can be seen as an extension of KYC.
What Information is Required for KYB?
KYB involves gathering information about a business, such as its legal name, registration number, legal form, ownership structure, beneficial owners, directors, and sometimes financial statements, business licenses, and other supporting data such as:
- Adverse Media Data;
- Chamber of Commerce Data;
- Sanctions Data;
- Politically Exposed Persons (PEP) Data;
- State-Owned Enterprises (SOE) Data;
- Black- and Warning lists;
- Consumer Reviews;
- PDF documents;
- Alternative Data.
KYC typically requires personal information about customers, such as name, address, contact details, identification documents (e.g., passport, driver’s license), and sometimes proof of address.
What Are The Compliance Requirements for KYB?
KYC and KYB are important processes financial entities use to comply with Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations. KYC is standard practice for financial institutions and other regulated entities to comply with regulations, such as CDD requirements outlined by financial regulatory bodies. Additionally, KYB is becoming increasingly important as regulatory frameworks evolve.
Are Financial Institutions Obligated to Conduct KYB Procedures?
Financial institutions are generally required to perform Know Your Business (KYB) procedures to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. KYB checks help these institutions assess risks related to their business relationships and prevent money laundering, fraud, and other financial crimes.