Beyond Entity Status: Automating Know Your Business and Beneficial Owner Verification

Verifying that a business exists is step one. Verifying who owns and controls that business—the Ultimate Beneficial Owners—is where compliance requirements get serious. FinCEN's Customer Due Diligence Rule requires lenders to identify individuals who own 25% or more of a business entity or exercise significant control over it.

A beneficial owner verification API pulls officer and member data directly from Secretary of State records across 30+ states, providing the foundation for UBO identification without manual document requests or applicant self-certification alone.

The KYB Compliance Framework

Know Your Business (KYB) verification encompasses several related requirements that apply to commercial lenders.

What KYB requires

According to LoanPro's compliance guidance, KYB processes must include:

• Entity verification: Confirming the business is legally registered and in good standing • Beneficial ownership identification: Identifying individuals who own 25%+ or exercise significant control • Officer verification: Confirming key management personnel • Ongoing monitoring: Tracking changes to ownership and status over time¹

The UBO requirement

The Financial Action Task Force (FATF) defines Ultimate Beneficial Owners as "the natural person(s) who ultimately owns or controls a customer or the natural person on whose behalf a transaction is being conducted."²

For lenders, this means you need to identify the actual humans behind the corporate structure—not just the entity name on the application.

Why it matters for lenders

The 2024 Corporate Transparency Act created a federal Beneficial Ownership Information (BOI) registry administered by FinCEN. While this provides a new data source, lenders still bear responsibility for verifying the accuracy of ownership information and conducting appropriate due diligence.

Sumsub's KYB research notes that "inadequate KYB may be an AML warning sign" and exposes lenders to regulatory penalties, reputational damage, and potential facilitation of financial crimes.³

State-Level Officer Data

Secretary of State filings contain valuable ownership and control information that varies by state.

What's publicly available

Officer/director names: Most states publish the names of corporate officers, directors, LLC managers, and members in their public records.

Registered agent: Every entity must designate a registered agent for service of process, providing at minimum one named individual or entity associated with the business.

Principal office address: Many states require disclosure of the business's principal place of business.

Formation documents: Articles of incorporation and organization often list initial directors and organizers.

Coverage by state

Officer and member data is available through state records in 30+ states where this information is publicly published. Coverage varies:

Strong coverage states: California, Texas, Florida, New York, and most other major commercial states publish officer information in searchable databases.

Limited coverage states: Some states publish minimal information beyond entity name and registered agent.

Delaware limitation: Delaware, despite being the incorporation state of choice for many businesses, provides limited public information. Obtaining detailed status information requires a separate paid request costing $15-20 per entity.

Data returned

A typical officer data response includes: • Officer/member names • Titles or roles (President, Secretary, Manager, Member) • Addresses (where published) • Effective dates of appointment

This data feeds directly into your UBO identification workflow.

Building the UBO Identification Workflow

Officer data from state records provides a starting point, not a complete UBO determination.

Step 1: Pull officer data

Query the Secretary of State for the applicant entity. Extract: • All listed officers, directors, managers, or members • Their titles and roles • Any percentage ownership if disclosed (rare)

Step 2: Cross-reference with application

Compare state-sourced officer data against application-provided information: • Do the names match? • Are additional owners disclosed on the application but missing from state records? • Do roles align (e.g., applicant claims to be CEO but isn't listed as officer)?

Discrepancies require resolution before proceeding.

Step 3: Request ownership documentation

State records rarely show percentage ownership. Request supporting documentation: • Operating agreements (for LLCs) • Shareholder registers (for corporations) • Partnership agreements

These documents identify the 25%+ owners who qualify as UBOs under FinCEN rules.

Step 4: Verify UBO identities

Once UBOs are identified, each individual requires KYC verification: • Government ID verification • Address verification • Date of birth confirmation

Step 5: Screen against watchlists

Every identified UBO must be screened against sanctions lists, PEP databases, and adverse media. This critical step connects directly to your broader compliance framework.

For guidance on implementing sanctions screening, see our article on screening owners against sanctions lists.

The Automation Advantage

Manual KYB processes create bottlenecks that automated verification eliminates.

Manual process challenges

Document chase: Requesting operating agreements, waiting for applicants to locate and submit them, following up on incomplete submissions.

Data entry errors: Manually transcribing officer names and details introduces errors that complicate downstream verification.

Inconsistent coverage: Different underwriters may apply different standards or miss required checks.

Time delays: Each manual step adds hours or days to the underwriting timeline.

Automated process benefits

Instant officer data: API queries return officer information in seconds, not days.

Standardized output: Consistent data format enables systematic cross-referencing.

Audit trail: Every query is logged with timestamp and results for compliance documentation.

Scalability: Process 100 or 10,000 applications with the same systematic approach.

According to iComply research, one equipment financing firm reduced application processing time by 48% after implementing automated UBO checks.⁴

Common KYB Failures

Understanding where KYB processes break down helps you build more robust workflows.

Incomplete data collection

LoanPro's analysis identifies "incomplete or inaccurate business data collection that fails to gather all required corporate documentation, omits key ownership information, or accepts incomplete UBO disclosures without proper follow-up" as a primary compliance gap.⁵

Solution: Use state-sourced officer data as a verification layer. If the application lists two owners but state records show four officers, investigate the discrepancy.

Single-source reliance

Relying solely on applicant-provided information without independent verification creates vulnerability.

Solution: Cross-reference application data against Secretary of State records, FinCEN's BOI registry (where accessible), and third-party data sources.

Complex ownership structures

Multi-layered ownership through holding companies, trusts, and nominee arrangements obscures true beneficial ownership.

Solution: Request organizational charts and follow the ownership chain until you reach natural persons. If the applicant can't document the ownership structure, that's a red flag.

Stale verification

Ownership changes over time. An entity verified at onboarding may have different owners months later.

Solution: Implement periodic re-verification for active accounts, especially before additional credit extensions.

Delaware: The Special Case

Delaware's business-friendly laws make it the incorporation state of choice—but also create verification challenges.

Why Delaware is different

Delaware protects corporate privacy more than most states: • Officer and director names are not publicly searchable online • Obtaining entity status requires a paid Certificate of Good Standing • Detailed information requires purchasing specific documents

Working with Delaware entities

For status verification: Budget $15-20 per Delaware entity for status verification requests.

For officer information: Request the Certificate of Formation or most recent Annual Report directly from the applicant, as this information isn't publicly accessible.

For UBO identification: Delaware entities require heavier reliance on applicant-provided documentation since state records provide minimal ownership information.

Risk consideration

The same privacy features that attract legitimate businesses to Delaware also attract those seeking to obscure ownership. Apply enhanced due diligence to Delaware entities, particularly those with complex ownership structures or recent formation dates.

Integration with Your Underwriting Stack

KYB verification should integrate seamlessly with existing workflows.

Data flow

1. Application intake: Capture entity name, state of formation, EIN
2. Entity verification: Confirm registration and status via SOS lookup
3. Officer data pull: Extract available officer/member information
4. Cross-reference: Compare against application-provided ownership data
5. Gap identification: Flag missing information or discrepancies
6. Documentation request: Automated request for operating agreements or ownership documents
7. UBO verification: KYC checks on identified beneficial owners
8. Sanctions screening: Watchlist checks on all UBOs
9. Decision: Proceed with verified ownership or reject for unresolved issues

System requirements

• API integration: Connect entity verification and officer data to your loan origination system • Rules engine: Automate cross-reference checks and flag discrepancies • Document management: Track requested and received ownership documentation • Screening integration: Route identified UBOs to your sanctions screening workflow

The Compliance Payoff

Robust KYB verification delivers benefits beyond regulatory compliance.

Fraud prevention: Identifying true ownership exposes shell companies, nominee arrangements, and ownership misrepresentations before funding.

Risk assessment: Understanding who controls the business informs credit decisions. A company controlled by individuals with prior defaults or bankruptcies presents different risk than one controlled by proven operators.

Relationship value: Verified ownership data supports ongoing relationship management, portfolio monitoring, and cross-sell opportunities.

Regulatory confidence: Complete KYB documentation demonstrates compliance during examinations and protects against enforcement actions.

The investment in automated KYB verification pays for itself through fraud prevention and operational efficiency—while keeping you on the right side of increasingly stringent regulatory requirements.

Sources

• LoanPro | Understanding Know Your Business (KYB) Requirements and Compliance

• Moody's | Ultimate Beneficial Owners (UBO) Verification & Legislation

• Sumsub | KYB (Know Your Business) Verification Guide

• iComply | KYB and UBO Checks for Commercial Lenders

• Fenergo | Understanding Ultimate Beneficial Owners (UBO) for Compliance

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