Most frauds involve the impersonation of individuals, corporate bodies or commercial entities: a falsified document, a convincing contact ... and a company is swindled, often without even realizing it. By the time victimized companies are vigilant, it's almost too late! And the most frustrating part? It's that the majority of these frauds could be avoided, or at least contained, with better management of commercial relations: customers, suppliers, partners.
Most people think of customer risk as being restricted to unpaid bills and the risk of bankruptcy. This is indeed an important component, especially since, according to the insurer Allianz, in 2024, 58.8% of companies were faced with the bankruptcy of a customer, compared with 49.6% in 2023 and 32.4% in 2022. But beyond these financial aspects, there are also issues of identity verification, reinforced vigilance and a healthy culture of doubt. Because well-crafted fraud is often perpetrated where our guard is down. And it's this day-to-day vigilance that makes all the difference.
Customer risk is not what you think...
In reality, the notion of customer risk is much broader, encompassing on the one hand the risk of non-compliance with anti-money laundering and anti-terrorist financing measures, and on the other, the risk of fraud.
Knowing who you're working with is the basis of any business relationship. The duty of vigilance is essential to conducting business with complete peace of mind. This is the philosophy behind two key principles: KYC (Know Your Customer) and KYB (Know Your Business).
KYC: a permanent duty to monitor
KYC consists in ensuring that an entity knows all its customers and their integrity, by means of checks, in particular on proof of identity, proof of domicile or official documents (extraits kbis). KYC is a continuous process: all customer data must be constantly updated in line with changes in legislation and risk levels. This is the principle of "KYC remediation" (cleaning up customer databases), which can (and must), of course, be automated.
It's worth remembering that in certain sectors, particularly the financial sector, the KYC approach is mandatory: the EU Directive 2015/849, which came into force in June 2017 and regulates the European financial system and the banking sector, provides for significant penalties in the event of non-compliance with procedures and regulations.
KYB: an effective bulwark against money laundering and terrorist financing
KYB is the counterpart of KYC for business relationships (suppliers, partners, associations, etc.). The principles are similar for both approaches. For KYB, vigilance is based on verifying identity, gathering information on the entities concerned (legal structures, legal representatives, etc.) and Beneficial Owners.
While the KYC and KYB approaches are simple in principle, their implementation cannot be improvised.
In concrete terms, the process is based on six stages:
- Collecting information: this must be exhaustive, so as to avoid potential points of vulnerability. Let's not forget that it only takes one customer or partner whose integrity has not been checked to create a breach of compliance, initiate a fraud or participate in a money laundering or terrorist financing operation.
- Verify collected data: the authenticity of documents provided by customers, suppliers and partners must be validated, especially in the face of artificial intelligences capable of producing false documents that appear authentic. According to a study by In Banque, over 20% of French people under the age of 35 admit to having falsified documents for banking purposes.
- Analyze risks: certain categories of customers, suppliers or partners require special vigilance, depending on their sector, country of origin, complex legal structure or history. It is a good idea to create a risk scale, even a simplified one (low, medium, high risk).
- Updating information: by definition, the data collected has a limited lifespan. It is therefore essential to update them automatically, as it is hardly appropriate to manage this time-consuming process manually, even when using official databases (commercial registers, international sanctions, lists of politically exposed persons, etc.).
- Detecting and alerting: the effectiveness of a KYC / KYB process relies on its operational capacity to detect all suspicious or unusual elements likely to create harm (fraud, non-compliance, attempted money laundering, suspected terrorist financing...) and to alert, in real time, the various stakeholders so that they can take the right decisions.
- Archiving: all the information collected as well as the transactions associated with each customer/partner/supplier are stored (in a secure space), in compliance with current legislation: AML directive, GDPR. This archiving is essential for carrying out audits or investigations in the event of non-compliance or fraud. The aim is to guarantee transparency, traceability and explicability.
Effective customer risk management requires technology
An efficient KYC and KYB process is therefore extremely complex. You need to manage stocks of information, update flows, huge volumes of real-time transactions and storage, and diverse and constantly evolving perimeters. All in real time, while avoiding any deviation from compliance obligations. This requires human, financial and organizational resources that can be optimized with cutting-edge technologies (artificial intelligence, Big Data, cloud, CRM, Machine Learning...) that integrate with existing systems.
Functionalities aligned with KYC/KYB needs
AP Solutions IO's solutions can make a number of contributions in this area, for example:
- Automation of the entire detection process to facilitate alert management.
- Instant detection as soon as a business relationship is established, and periodic detection of the entire third-party database (individuals and companies).
- Automated data remediation, filtering through millions of pieces of information.
- Daily updating of the various lists, with screening of all customer bases.
- Augmented intelligence technology to identify and score risk levels.
- Different scenarios can be configured to suit the specific needs of each business (finance, e-commerce, insurance, mutuals, etc.).
KYC and KYB: powerful competitive leverage
Implementing and optimizing KYC and KYB processes may seem counter-productive, as they are highly restrictive and consume resources (human, financial, technological...). On the contrary, it is a powerful lever for improving competitiveness. In concrete terms, this means :
- Improved customer/partner/supplier relations: a fluid, digitized KYC/KYB process reassures all stakeholders in business relationships.
- Reduce the risk of fraud, money laundering and terrorist financing, by controlling the integrity of customers, partners and suppliers.
- Save time and increase operational efficiency: automated KYC/KYB remediation reduces risk, speeds up decision-making and ensures regulatory compliance.
- Business acceleration: being compliant opens the door to partnerships with regulated players, particularly internationally. KYC and KYB promote more secure and lasting business relationships.
- A reduction in non-compliance costsby avoiding costly fines or sanctions in the event of an inspection.
- Strengthened governance, with a better understanding of stakeholders, including Beneficial Owners.
Leave no room for uncertainty in your business relationships. With AP Solutions IO's enhanced intelligence, you can detect risks, automate controls and stay compliant with ease.
