The concept of financial services investigation is not new. But not many people are aware of what exactly has due diligence to do with it. Well, due diligence itself is an investigation and verification process that ensures the scope of investment is right. Before cracking a potential deal on a certain investment, due diligence would check all the financial data and confirm the associated facts. This way the investment process or any deal brought during an M&A can turn out to be a successful one. This whole process gets finished only when the deal closes to offer the buyer an assurance on what they shall get.
The investigation process:
There is no better financial services investigation option than due diligence. This process is one way a legal audit that also refers to some review operations made earlier of a company or a person. In case any possible risks may come up, the same shall be evaluated before the economic relation is established. The research also focuses on understanding the company or individual real intentions. Besides, all background is well verified and checked if there is no crime committed. This process information process is carried out by the expert agent who will assess the situation and risk during the negotiation.
Due Diligence Relation to KYB And KYC
To get the details about the person or the business and verify them, the process begins with identification. It is important to ensure that the business or person with whom the further negotiation will take place are the people they claim to be. Once the identification is done, the trust relationship can be established and further process of due diligence can be created. This process is closely associated with the term known as “ know your business. It is the very first step in the remote process where the subject’s identification needs to be investigated.
KYB is nothing but the standardized used KYC’s variant. It is also called Client Due Diligence (CDD). Many companies look forward to getting the customers irrespective of the location. But eventually, there is some legal obligation that needs to be followed. That is when remotely the identification of such users can be done. For this, a reliable verification system is used which is secure of course. The whole process over quite some time now has evolved to eKYC as digitalization has emerged. This shows the revolution happening in contractual relationships amongst the companies and users.
When it comes to the financial services investigation process, due diligence is extremely important. That is when eKYC can be helpful. It can also be used for the existing client who may not be part of the process. It is the entities that shall manage the risk models and identify the clients or companies that have high risk. Be it a self-employed person or an individual, the process of KYC is the primary step for investigation.
Due Diligence And Regulations that should be followed
Like other regular legal processes, due diligence should follow the current regulations that often get affected by the given process nature. This way the regulations that are part of it are:
- GDPR:
One of the crucial parts of financial services investigations is the green data protection rules and regulations. It is associated with personal data treatment and its associated use. If there is any due diligence process to be carried out, it must fulfill the GDPR guidelines because of the subject data treatment that the company shall be investigating.
- AML5:
The Anti-Money Laundering Directive looks after different aspects that are involved during the money laundering action in different online and offline processes. This is an obligatory standard that hampers all the industries but more for the banking and financial sector. This creates the technique to protect against money and fraud laundering.
- eIDAS:
the regulation of electronic Identification, Authentication, and trust Services talks more about the foundation for the users and companies’ identification. It approves the trust seal for the companies that further are qualified. It also highlights different aspects associated with online exchanges and electronic signatures.
Basic Characteristics of The Due Diligence Process
The process consists of the series of certain characteristics which shall regulate and standardize it in good practices in such financial services investigation and analysis:
- The details will be confidential between parties. It needs to be treated as per the regulations such as RGPD, AML5, or eIDAS
- Considering different negotiations, it is an obligatory process that the law has set. Good faith is also considered by the information provider.
- It is advised that a third party should be doing this whole process. The company that is specialized in the due diligence or KYC or KYB process can do the needful.
- It is important to have a clear objective set. Primarily the party contingencies with whom further negotiation will be done need to be stated.
This whole financial services investigation process can help in uncovering crucial details which shall show how the organization or individual would conduct the overall business. The agent shall consider the specifics such as industry reputation, finances, management strategy, or even the organizational history to name some. The details offered during this process shall focus primarily on the overall picture of the organization for an informed business decision. If the whole process is carried out in the desired manner, then the chances of risk will be less while the scope of success shall be more.
Conclusion:
Due diligence is a common process in the business-to-business field where buying and selling are often done. Besides, when two or more companies are planning to merge, this kind of process is initiated. This financial services investigation process is also called the purchase audit in many scenarios. To be precise, it is all about the research on the company or the person before signing for the investment. This certainly is one of the crucial processes that would further decide the relationship between the company or the individuals who are planning to merge the business.
