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Know Your Business: Unlocking Growth and Navigating Regulatory Complexity

10/10/23
Travis Jarae
Travis Jarae
Liminal CEO
Jennie Berry
Jennie Berry
President
Stacy Schulman
Stacy Schulman
SVP of Marketing
Will Charnley
Will Charnley
Managing Director
KYB Blog post

Know Your Business (KYB) is the cornerstone of compliance for financial institutions and regulated entities. It goes beyond a compliance check, ensuring businesses validate their clients’ legitimacy, trustworthiness, and legal standing. This includes a critical step of confirming beneficial owners, which is pivotal for effective risk management and fraud prevention. Despite its regulatory necessity, KYB processes, also called Business and Entity Verification (BEV), in many financial institutions are resource-intensive and prone to errors, with manual onboarding stretching up to four months, resulting in revenue loss and client frustration. While historically dominated by a few key players, the KYB market is experiencing disruption, with new entrants challenging the status quo. The KYB market is forecasted to reach $8.3 billion by 2023, showcasing a Compound Annual Growth Rate (CAGR) of 8.4% through 2027.

The Know Your Business, or Business and Entity Verification, process has become a vital compass for navigating the complexities of compliance and fraud prevention. Below is a summary of our members-only research on the Link platform, Outside-in Report: Know Your Business (March 2023), where we explore the intricacies of KYB, examining its current state, challenges, and transformative potential for businesses, particularly in the face of growing regulatory pressures.

Key Takeaways include: 

  • KYB is pivotal in helping businesses navigate complex regulatory landscapes, ensuring compliance with evolving frameworks like the Anti-Money Laundering and OFAC.
  • Leveraging technological advancements like automation and analytics to go beyond compliance and enhance operational efficiency.
  • KYB emerges as a strategic tool in the ongoing battle against fraud, integrating into supply chain risk management and fraud prevention to safeguard businesses.
  • The challenges of bringing together the KYB process across diverse global regulations emphasize KYB’s role as a tool adaptable to global risk compliance requirements.
  • Liminal projects a Total Addressable Market (TAM) of $8.3 billion by 2023 and an annual growth rate of 8.4% through 2027.

Liminal’s market sizing model is promising, forecasting a TAM of $8.3 billion by 2023 with a CAGR of 8.4% through 2027. Despite potential macroeconomic challenges affecting account openings, the demand for ongoing monitoring remains robust. Regulatory tailwinds in the US and Europe underscore the need for solutions streamlining compliance across jurisdictions. Vendors showcasing value in supply chain risk management and fraud prevention are positioned for differentiation.

Although mature, the Know Your Business segment holds untapped growth potential through innovation. Non-regulated entities can use KYB to mitigate risks to reputation and revenue. Challenges arise from the resource-intensive nature of KYB processes, with manual validation lasting up to 16 weeks. Streamlining digital onboarding is not merely a compliance necessity but a significant revenue accelerator.

KYB serves critical functions beyond compliance, providing financial institutions, crypto companies, and other risk management functionality. Key use cases include ultimate beneficial owner compliance, B2B cross-border payments, continuous monitoring, and risk management.

The current KYB process, burdened by manual steps, operates as a bottleneck. However, opportunities for improvement arise through innovations in user interfaces, task automation, and enhanced analytics. Seamless interfaces for data and document collection eliminate manual steps, while task automation reduces resource expenses and accelerates the time to revenue.

The intersection of regulatory changes and operational challenges is driving KYB services toward growth and innovation. Evolving regulations, such as the Anti-Money Laundering Directive and FinCEN’s beneficial owner reporting rule, are reshaping the landscape, and persistent operational challenges necessitate ongoing improvements. Emerging technologies and competitors pose threats to traditional KYB firms. Escalating penalties heightens the need for a robust response, compelling enterprises to seek streamlined solutions powered by technological advancements.

Unlocking KYB’s Potential

Liminal is optimistic about the KYB market’s future, anticipating substantial growth and an evolving landscape. Regulatory demands in the US and EU and cryptocurrency companies’ expansion will likely fuel demand for enhanced KYB practices. Solutions offering cross-country compliance and reducing manual work will have a competitive edge. Vendors demonstrating KYB’s value beyond compliance will foster enduring relationships. While KYB remains a regulatory necessity, its potential extends to companies focused on trust and safety and those facing significant supply chain and B2B payment risks. The journey of Know Your Business is transformed from a compliance mandate to a strategic advantage in an increasingly complex and interconnected landscape of business identity.

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