But there’s another important verification process called Know Your Business, or KYB. Appropriate KYB measures can help your company comply with standards, reduce fraud, and increase trust and safety. KYB is essential for some industries, such as fintech, but any company that serves or works with another business (like a B2B supplier) can deploy KYB to protect their business.
What is Know Your Business (KYB)?
Know Your Business (KYB) due diligence is the process of verifying the legitimacy of any business that your company works with. This could be any stakeholder organization you have a relationship with, from suppliers to customers to consultants.
By conducting thorough KYB processes, you can be confident of two things:
- That the business you’re working with is real — not an illegal or illegitimate corporation that only exists on paper.
- That the individuals running the business are physical people and that they aren’t involved in any wrongdoing or crimes such as money laundering or financial terrorism.
KYB vs. KYC
So what’s the difference between KYC and KYB? As you might imagine, they’re actually very similar. Both are verification processes you can put in place to better follow AML regulations, prevent fraud, and protect your business.
The main difference between the two is the subject of the verification. In traditional KYC, you assess individuals. For Know Your Business, you look at the business itself as well as the people behind the business.
Why does KYB matter?
KYB is relatively new in the world of fraud mitigation. KYC regulations have been protecting companies since 2002, but until recently there was a loophole: business relationships were not subject to the same scrutiny as individuals.
This meant that criminals could set up shell companies and use them to defraud businesses or, more commonly, use legitimate businesses to hide their identities. Since business records were only briefly assessed, the fraudster could launder money, commit fraud, or fund terrorism without being personally screened or creating a paper trail.
In 2016, the US Financial Crimes Enforcement Network (FINCEN) addressed this problem by launching new Know Your Business regulations within its Customer Due Diligence Requirements. Now any company working with another business has a standardized method to verify that the company itself is legitimate.
Who needs to conduct KYB?
While Know Your Business is not as widespread as KYC, it is becoming more and more important for businesses that wish to remain compliant and prevent fraud.
Banks, financial institutions, and businesses that work with them (such as fintech or crypto companies) are required by law to complete KYB verification. That said, any business can benefit from KYB procedures to reduce fraud and increase trust and safety. When you take advantage of KYB, you can be confident that all of your business partners are legitimate.
How to conduct KYB
Step 1: Verify the business
The first step of Know Your Business is to ensure that the business exists in the real world and that their financial activities are legal and legitimate. This process will give you confidence that you’re not working with a business whose income funds illegal activities.
You can complete business verification by requesting and checking official documents. To ensure a company is legitimate, you’ll need:
- A valid business name and address
- Proof of incorporation or registration
- Details about the ownership structure
Step 2: Verify the people behind the business
Once you’re confident that the business itself is legitimate and one you’d feel comfortable working with, you need to take a peek behind the scenes. Minimize your risk by investigating whether the principals involved in the business are law-abiding citizens.
You’ll need to identify each of the key stakeholders in the business, also known as the Ultimate Beneficial Owners (UBOs). UBOs include anyone who controls the company or has a 25% or greater ownership stake.
During corporate KYC, you’ll confirm that each UBO is a real person who is not on any watchlists or sanction lists, and that they are not involved in fraudulent activity. By verifying their identity and ensuring they’re not on any watchlists, you can protect your business from exposure to bad actors.
Simplifying Know Your Business (KYB)
KYB is an essential practice for any company that works with other businesses. But it can also be complex, costly, and time-consuming for organizations, thanks to such challenges as:
- It requires collecting many different documents and types of information
- There are multiple databases and information sources to verify against
- It’s difficult to compile and understand multiple KYB processes into one result
For these reasons, it’s typically much more efficient to use automated Know Your Business tools that can streamline the process by allowing you to collect the information you need, run automated verifications on businesses and beneficial owners alike, and conduct manual investigations as necessary in one place.
Get started on Know Your Business with Persona
You don’t need to be a fintech business to benefit from Know Your Business (KYB) procedures. In fact, it’s crucial for any organization that works with other companies in any capacity.
There’s no silver bullet to identity verification, and KYB isn’t a catch-all solution that can eliminate fraud. It’s simply another tool in your toolbelt that can help you comply with legal requirements and protect your business from bad actors.
While KYB used to be time-consuming, you can make the information collection process as frictionless as possible by using Persona to build seamless verification flows that handle KYB and KYC with a single integration.
Persona’s system streamlines KYB with the capability to automatically collect a wide range of information, look up and screen businesses, run KYC checks on beneficial owners, and more. Access everything you need from one convenient platform with themes and integrations customized to meet your unique needs.
Ready to unlock KYB and protect your business? Get started with Persona today.