Small and medium-sized enterprises (SMEs) are a crucial part of European economies. To aid their growth, many companies try to make applications for services like loans, credit cards, and insurance faster and easier. However, onboarding small businesses poses some level of risk to companies. Anti-money laundering (AML) and financial crimes have been on the rise since the start of COVID-19, and almost one in five new businesses within the EU fail during their first year.
Ensuring the legitimacy of businesses, their partners, and their financial standing is crucial for risk management and regulatory compliance. However, the European Union faces challenges in accessing the necessary data for Know Your Business verification, leading to increased risks, expenses, and missed financial opportunities.
In this article, we speak with Jesus Santiago, the Sales Director for Markaaz in Europe, to delve into the intricacies of verifying small and medium-sized enterprises (SMEs) in Europe and the importance of having a current and dependable data provider for validating information.
Business verification in Europe explained
Let’s start with a quick explanation of how business verification in Europe works when it comes to Know Your Business (KYB).
Enterprises must gather and verify information about SMEs, including legal name, registration numbers, date and place of incorporation, ownership structure, directors, and beneficial owners.
The KYB process also requires:
- Business data validation: Verifying the accuracy of the data.
- Document verification and authentication: Matching certified copies or documents with registry data.
- Financial due diligence and assessment: Assessing the financial health, transaction behavior, and risk profile of the business.
- Beneficial ownership identification: Identifying who ultimately owns or controls the business.
- Risk assessment and mitigation: Evaluating risks of money laundering, fraud, and sanctions violations.
KYB processes must also address financial industry concerns and comply with European compliance and money laundering rules:
- The Fourth, Fifth, and Sixth AML to mitigate money laundering
- The Payment Services Directive (PSD2) to avoid payment fraud and abuse of digital financial tools
- The revised Markets in Financial Instruments Directive (MiFID) for increased transparency and reporting for investment firms
Businesses change over time, so you also need to implement risk management controls and conduct ongoing monitoring to detect changes in ownership, activity, or financial health.
Another challenge for companies in complying with AML regulations is that there are regular updates. For example, new guidance and oversight were addressed in 2023. Staying up-to-date and compliant with these lists and ongoing rules can be a challenge.
A siloed data ecosystem
Ensuring Know Your Business (KYB) compliance demands meticulous cross-referencing of SME-collected data with registrars, credible sources, and watchlists. However, unique challenges emerge in consolidating data sources and providing both the firmographic and financial data companies need for KYB verification.
“EU countries have made a concerted effort to create similar SME registration processes, but many still follow their own regulations,” notes Jesus Santiago, Head of Sales, Europe at Markaaz. “This creates data gaps in specific countries, making it difficult to set up an efficient and scalable method for validating business data.”
Around 50% of European nations, mainly in Eastern Europe, face limited data coverage. In Western Europe, SMEs need to register their businesses, so firmographic information is relatively accessible, but companies must still invest in consolidating this data.
“Free registrars exist, but they pose challenges. Providers must navigate diverse data sources, manage translations, and more,” explains Santiago. “Doing this across countries is daunting. You would have to become a data expert for each nation, which isn’t practical.”
In addition, financial data such as business failure risk scores, business credit risk scores, and bankruptcy are important to assess risk, but registrars do not collect this information. Also, sole traders and partnerships, which are legal non-registered businesses, are not included. These tend to be bigger companies, but they represent a large percentage of businesses in Spain, Germany, Ireland, and the UK in particular. The only data available tends to be from marketing databases, which are unregulated. For enterprises looking to streamline data sources and reduce costs, finding a supplier for sole trader, partnership, and SME data poses a problem.
Markaaz takes the lead in overcoming these obstacles. “We handle it all for clients. We excel in SME data but offer the same robust coverage for businesses of all sizes,” Santiago states. Using international sources and our matching algorithms, we aggregate and validate data for comprehensive EU coverage. Markaaz enables businesses to confidently navigate EU data complexities with ease.”
Better business data from one source
Rather than dealing with multiple registries, databases, and country-specific conditions, Markaaz allows you to query one data source for all European and most global countries. The Markaaz Directory holds over 300 million records with the most up-to-date firmographic, business health (including business credit and financial risk scores), and AML compliance data. Proprietary matching technology chooses the best data from diverse global sources to create the most precise, accurate, and comprehensive business profile in the industry.
With Markaaz, you can also leverage an automated application programming interfaces (APIs) to get instant data validation integrated into your workflow.
“Automating the verification and approval process and integrating it into your onboarding processes is essential to avoid errors, lower cost, and reduce delays,” says Santiago. “With manual verification, you’d need to search for data in various public and private databases and continuously request information from the company. Hunting down accurate information is labor-intensive and time-consuming. Markaaz helps you eliminate that costly step.”
Bringing accurate SME data to your business
Effective SME verification is only as good as the underlying data that is available, its completeness and accuracy, and accessibility.
Markaaz can help. With plug-and-play business verification, decisioning, and monitoring tools, you can simplify the KYB process for your SME customers, saving you time and money. With the most accurate and comprehensive SME data in the industry, Markaaz provides the EU KYB and AML solutions you need.