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What is KYB, and why does it matter?

If you work with other companies, you may be required to implement KYB verification. Learn more.

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⚡ Key takeaways

As they seek to fight against the ever-rising threat of fraud, most companies are aware of KYC (Know Your Customer) requirements and how they fit into anti-money laundering (AML) regulations.

But there’s another important verification process called Know Your Business — also called corporate KYC or simply 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:

  1. That the business you’re working with is real — not an illegal or illegitimate corporation that only exists on paper — and is safe to do business with.
  2. 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.

Frequently asked questions

What are some examples of KYB regulations?

KYB regulations can vary depending on where you do business and what your banking partner requires. However, some common KYB regulations and entities include:

FinCEN launched Know Your Business regulations within its Customer Due Diligence requirements in 2016.

According to the CDD Final Rule, covered financial institutions must “identify and verify the identity of the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.”

What types of KYB checks should be performed by businesses?

Common types of KYB checks include obtaining and verifying relevant business registration documents and business information such as the name, address, and registration number. In addition, KYB may involve checking businesses against government sanctions and watchlists. 

KYB checks also include identifying and verifying the ultimate beneficial owners (UBOs) of the business — in other words, anyone who controls the company or owns 25% or more of the total shares in the company. 

Can AI technology improve KYB automation?

Yes. Using automation makes it possible to streamline the process of collecting and verifying KYB information and communicating with the business that’s being verified. For example, in addition to real-time decisioning with automatic verifications and reports, Persona’s KYB solution allows you to conduct KYB and KYC on the business’s UBOs simultaneously and streamline the process by ensuring the business submits the correct documents.

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