Holistic Identity Profiles - the Future of KYC and KYB

Building a Comprehensive and Resilient Approach to KYC and KYB

When conducting Know Your Customer (KYC) and Know Your Business (KYB) checks, it is crucial to have a deep understanding of the entities (individuals and organizations) we engage with, their behaviors, and the potential risks involved in establishing or maintaining business relationships with them. A mere snapshot of information at a single point in time is not sufficient; continuous monitoring is essential. For example, if a new board member is appointed to an organization you have conducted business with, you need to know who that individual is and assess whether they pose an increased risk, such as being a politically exposed person (PEP). This is where Bits comes into the picture. With our seamless onboarding and continuous monitoring of your customers, you’ll have all the data you need to make well informed decisions.

The Complexity of Entity Monitoring

When a new board member is discovered, several questions arise: has this person had any prior engagement with your business? Have they attempted to establish a business relationship with you in the past and been declined? How does this new information impact your view of the organization they now represent? It might also be worth checking whether this individual serves on the boards of multiple organizations that have interacted with you—especially if these entities have shown signs of questionable behavior. Such patterns might indicate an attempt to use your business for illicit activities.

For both KYC and KYB, the amount of information required to prevent fraud is extensive and complex. While some countries provide comprehensive public registries of organizations and individuals, many others lack critical data points. This forces businesses to connect multiple sources, such as credit bureaus, public databases, and third-party registers, to build a comprehensive view. These sources often differ in data structure and quality, creating significant challenges in identifying and matching data to the correct entities within your systems.

These complexities make it difficult to adapt systems for new processes while maintaining compliance. Furthermore, businesses must provide evidence of robust processes and an audit trail to regulators, demonstrating effective monitoring and reporting of suspicious behavior.

How Bits Turns Disconnected Data into a Clear Picture

Scenario: Imagine you’re an organization looking to seamlessly onboard customers while safeguarding against money laundering and fraud. You aim for an intuitive user experience that synthesizes all the collected information into a coherent identity profile. No more sifting through unstructured questionnaire data or flipping between business registry reports. This is where the Bits holistic identity profile comes into play.

What Is a Holistic Identity Profile?

At Bits, we've been working hard lately on what internally has been known as "Project Entities". But what do we mean by an "entity"?

An entity in data management, and graph databases, is a distinct object or instance, such as a person or organization, that has been modeled and stored within a database. An entity includes all relevant data and relationships associated with that person or organization.

And as Shakespeare said, "a rose by any other name would smell as sweet." Or, as we say in Swedish, "kärt barn har många namn". For us at Bits, an entity—or a holistic identity profile—is a 360° digital representation of an individual or organization. This includes and all the data points we've collected about them, as well as their relevant relationships, such as board members, beneficial owners, and group ownership structure. And going forward this will, in the Bits eco system, be known as a customer’s Holistic Identity Profile.

By gathering this data and creating this Holistic Identity Profile, we make the information much more accessible for our clients. Instead of scrolling through unstructured questionnaire answers and old applications, we enable agents to review a cohesive digital representation of the individual or organization. And whenever we receive new data, the profile is automatically updated, ensuring it remains up to date and our customers stay compliant.

Why Graph Databases Are a Game-Changer

KYC and KYB processes are inherently complex and data-intensive. Traditional relational databases often struggle to handle the dynamic and interconnected nature of this data. Enter graph databases—an innovative solution that can revolutionize the way organizations manage KYC and KYB onboarding.

Much of the critical data for organizations lies in understanding their relationships: Who are the board members? How long have they served? Who are the beneficial owners? What does the group ownership structure look like?

These relationships are best modeled using a graph database. So, let's talk a bit about what that is.

Graph Databases 101: What Are They?

Unlike traditional relational databases, which store data in tables and rows, graph databases use nodes, edges, and properties to represent and store data. Nodes typically represent entities (such as people, organizations, or transactions), edges represent relationships between these entities, and properties provide additional information about both nodes and edges. This structure mirrors real-world connections between data points, making it highly effective for managing complex and interrelated data.

Benefits of Using Graph Databases

1. Enhanced Relationship Management

   Graph databases naturally represent and manage relationships between entities. In KYC and KYB processes, understanding relationships between individuals, organizations, and transactions is critical. For example, identifying beneficial owners, understanding corporate structures, and tracing connections between seemingly unrelated entities are all essential tasks that graph databases handle effectively.

   
   

2. Real-Time Fraud Detection and Risk Assessment

   Graph databases excel at pattern recognition and anomaly detection, which are crucial for identifying fraudulent activities or high-risk entities during the onboarding process. Because graph databases efficiently handle complex queries, they can analyze vast amounts of interconnected data in real-time. This capability allows us (Bits) to quickly identify suspicious patterns, such as unusual transaction chains or hidden relationships between entities, and alert you, our customer, about it.

   
   

3. Faster Query Performance

   In relational databases, complex queries involving multiple joins across large datasets can be time-consuming and resource-intensive. Graph databases, however, are optimized for traversing relationships and can execute complex queries with high efficiency.

Why Real-Time Graph Traversing Is a Game-Changer

Now that you know what a graph database is and how it works, let’s dive into why real-time graph traversing is so powerful for KYC and KYB.

Like we said, relationships are everything when it comes to spotting high-risk entities and fraudulent behavior. Imagine an individual repeatedly joining the boards of companies that go bankrupt soon after. Suspicious, right? With relationships at the heart of the data model, a graph database makes it way easier to see these patterns than traditional databases, where relationships are a bit of an afterthought.

Or picture this: you’ve onboarded ten new companies. When you dig into the details, the board members, beneficial owners, and registered addresses start to look oddly similar. Plus, some older linked companies already have a bunch of red flags. Could it be the same people creating new entities to hide their fraud? Without relationships front and center, piecing this together would be a nightmare.

How We Create These Profiles: An Event-Driven Architecture

At Bits, we gather the data you need to stay compliant by connecting to all the key sources in a market—during onboarding and throughout the customer’s lifecycle. This data gets broken down into smaller components and sent as events across our system.

Each event captures the details of a specific data change, whether it’s someone’s new address, a company’s number of employees, or if someone is suddenly a beneficial owner of an organization. It also records who made the change, whether it was a human agent or our automated monitoring system. Plus, it tells you where the data came from—like the Companies House in the UK or the EU sanctions list.

The Benefits of an Event-Driven Architecture

This approach offers a highly granular understanding of what data was changed, who changed it, when the change occurred, and where the data came from. By modelling the data in this way, we create a clear audit trail within the entity itself, eliminating the need for a separate, complex system to manage the audit trail process.

Wrapping It Up: Making Compliance Simple with Holistic Profiles

With Bits, you get a full, up-to-date view of your customers and business partners. Our holistic identity profiles, powered by graph databases, make it easier to stay compliant, reduce risk, and stay ahead of financial crime. Whether you’re bringing in new customers or monitoring existing ones, our approach gives you a clearer, more reliable way to manage complex data and relationships.