Business entity verification is the process of confirming the legitimacy and identity of a corporate entity such as a company, a partnership, or a sole proprietorship. This entity verification research typically occurs during an onboarding process that might be carried out by a financial institution, such as banks, to comply with know your customer (KYC) and anti-money laundering (AML) regulations. However, looking for risks associated with entities in a business network is an ongoing part of compliance and risk management.
Entity verification involves conducting searches and gathering data to validate key information about an entity such as business name, registration number, address, officer details, incorporation, and ownership records, as well as other official data filed in state and national registries. Information such as legal structures, financial health, and compliance status can be garnered through an effective business entity verification process.
Conducting business entity verification is crucial to mitigate risks related to sanctions, fraud, money laundering, and other financial crimes. By ensuring the accuracy and authenticity of business entities, organizations can establish trust, maintain regulatory compliance, and safeguard their operations from potential risks. It helps answer the questions -
First up though, what is the difference between a company and an entity? Well, a useful guide would be that a company is a specific type of legal entity that is formed to conduct business activities, while an entity is a broader term encompassing different types of organizations, including companies, Limited Liability Companies (LLCs), partnerships, or even government entities. It is easiest to think of companies as a subset of "entities" distinguished by their corporate structure and business operations.
A business entity is a legally recognized organization formed to conduct commercial activities, like buying, selling, or providing goods and services. It can take different forms - corporations, partnerships, and sole proprietorships. But business entities are distinct legal entities, separate from their owners, which offers liability protection as well as independent legal recognition. This makes it important to establish whether the entity is legitimate, and who the ultimate beneficial owners (UBOs) of the entity are.
Moody's, through its innovative solutions, plays a crucial role in supporting efficient entity verification, enabling organizations to assess and mitigate potential risks. Traditionally, entity verification processes have been cumbersome, involving extensive paperwork, document collection, and manual verification, leading to inefficiencies and increased risk of errors.
The advent of entity verification APIs and AI-enabled technologies, such as Moody's, has transformed this landscape, giving rise to a digital approach to verifying and authenticating an entity at onboarding, and then regularly updating risk profiles through intelligent, perpetual monitoring and screening, or pKYC. According to PWC research "In some cases, through the adoption of pKYC, banks have achieved savings of up to 60%-80% of the total effort across the entire customer book."
Automating the entity verification process and orchestrating digital searches is infinitely faster, more efficient, and reliable. They also enable human analysts to be brought into the process where they add value or are needed to validate information gathered electronically.
Moody's process of entity verification integrates access to essential corporate data, ownership information, and other entity verification checks from approved sources. For example, we have direct connections to national registries, providing real-time access to global, audit-proof documentation, which is verified, and time stamped to meet compliance and regulatory standards.
We offer a single solution to search for, retrieve, and curate entity verification data. Creating an accurate, complete, and comprehensive view of:
Orchestrated via a single platform or API to ensure compliance teams and risk analysts have the data and insights they need to make better, risk-based decisions about who to work with.
One of the significant advantages of bringing this information into one platform is that it can be "reused", for example as part of Master Data Management (MDM). Once a corporate entity is onboarded and its identity established, this trusted information can be accessed and reused for any subsequent verifications, which streamlines the process, but it can also be leveraged more widely across an organization. The entity's profile can be used to form "golden records" for other departments to use. This approach accelerates onboarding of other products and services, and other areas of a business, such as sales and marketing. Administrative burdens are reduced, potential for errors associated with traditional verification methods are limited, and data is leveraged more widely.
The bi-directional integration of entity verification and MDM is a technological and a strategic advancement in today's competitive, risk-prone, and highly regulated environment. The transition of entity verification into MDM represents a shift towards more efficient and integrated data ecosystems, which facilitates compliance with KYC and AML regulations, but also enables much more in terms of competitive advantage and customer satisfaction.
For commercial and corporate banks in particular, the convergence of entity verification and MDM offers numerous benefits. It enhances trust and credibility among stakeholders, streamlines operations, mitigates risks related to fraud and regulatory non-compliance, and serves as a catalyst for innovation.
Read more about how Moody's has helped one global banking leader in this case study. It highlights how the bank is adapting its KYC processes with Moody’s Entity Verification API, enhancing Master Data Management and operational efficiency. Our client wanted an innovative, automated solution to serve its investment and commercial banking divisions better and faster.
The implementation of Moody's Entity Verification API provides a single, trusted source for entity data, enabling digital onboarding and perpetual KYC processes, which are flexible, and always-on.
Moody's supports efficient business entity verification through access to a real-time network of commercial registers, and other authoritative sources worldwide, smart risk insight technologies, and orchestration of processes through a single platform. This approach is instrumental in helping organizations navigate the complexities of risk, regulation, and competition.
By embracing these innovations, businesses can enhance compliance, streamline operations, and unlock new avenues for growth and collaboration, all while maintaining the highest standards of integrity and trust. We are committed to supporting efficient business entity verification through digital solutions that are essential in helping adapt to the evolving regulatory landscape and thrive in the digital age.
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Digital onboarding | Sanctions compliance | Supply chain risk management | Third-party risk management