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What is Know Your Business (KYB)?

Strict compliance procedures are now essential for reducing financial risks and protecting company reputations across all industries. Know Your Business (KYB) is a crucial procedure for confirming business associates in order to stop financial crimes like tax evasion, money laundering, and financing terrorism.

What Is KYB (Know Your Business)? 

Confirming the identity, ownership, structure, and risk exposure of corporate clients or other business entities is known as KYB. KYB guarantees that companies aren't unintentionally doing business with dishonest, illegal, or sanctioned companies. 

Why Is KYB Important? 

Following KYB regulations is crucial for a number of reasons:

  • Financial crime prevention, since KYB prevents businesses from unintentionally supporting financial crimes like money laundering, tax evasion, and financing terrorism. 
  • Ultimate Beneficial Ownership (UBO) transparency, another one of the advantages of following KYB regulations, helps prevent hidden risks by identifying shell corporations and guaranteeing ownership clarity. 
  • Regulatory compliance, this aspect of KYB adheres to international guidelines, including the FinCEN requirements, EU AML directives (AMLD6), and the FATF Recommendations. 
  • Reputational integrity, since KYB enhances credibility by limiting exposure to hazardous alliances. 
  • Penalty mitigation, because KYB prevents expensive regulatory fines brought on by non-compliance. 

What Are KYB Checks?

KYB investigates a corporate client's legitimacy and risk factors through a number of methodical checks, such as:

KYB Check Purpose
Business Registration Validates the entity’s existence and legitimacy using government or commercial registries.
UBO Identification Identifies natural persons who ultimately own or control the business.
Sanctions/PEP Screening Verifies the company itself, shareholders, and directors against global watchlists.
Adverse Media Checks Flag involvement in negative press or activities such as fraud and financial misconduct.
Business Licenses & Tax Confirms operational legitimacy and compliance with local tax laws.
AML Risk Scoring Analyzes jurisdiction, industry, ownership, and other risk factors to assign an overall risk score.

 

What Are KYB Requirements?

Know Your Business (KYB) regulations make sure that companies confirm the legitimacy and honesty of companies they do business with. 

Typically, KYB entails gathering and examining the following: 

  • Registration documents 
  • Ownership and business structure information 
  • Financial operations 
  • Compliance procedures 

Among the due diligence procedures are:

  • Confirming registration paperwork 
  • Finding the ultimate beneficial owners (UBOs) 
  • Performing negative media checks 
  • Evaluating the risks associated with anti-money laundering (AML) 

Advantages of meeting KYB requirements: 

  • Reduces the likelihood of financial crimes like money laundering and fraud. 
  • Ensures adherence to national and international laws.

KYB process considerably shortens your customer entry process in your collaborations

What are KYB Procedures?

The identity, legitimacy, and operations of business entities are confirmed by Know Your Business (KYB) procedures. 

Goal: 

  • Create trust. 
  • Verify adherence to rules. 
  • Reduce the possibility of dishonest or illegal collaborations. 

Important steps in KYB procedures include:

  • Gather and examine necessary paperwork, such as business registration certificates, evidence of ownership arrangements, and financial documents. 
  • Determine who the Ultimate Beneficial Owners (UBOs) are. 
  • Verify backgrounds for unfavourable media.
  • Assess risk for activities like money laundering or illegal operations. 

KYB offers the following advantages: 

  • Reduces financial, legal, and reputational risks. 
  • Encourage a safe and legal business environment.

The Role of UBO (Ultimate Beneficial Owner) 

An individual or group of individuals who ultimately control or profit from a company is known as the UBO. A company must own or control 25% or more of it in order to qualify as a UBO.

Since concealing the true beneficiary is a common strategy for fraud, money laundering, and tax evasion, it is imperative to comprehend and validate UBO information. By making this data easily identifiable for regulatory purposes, KYB increases transparency; therefore, according to AML compliance protocols, failing to identify the correct UBO is a serious red flag.

Manual vs Automated KYB

To confirm business entities and guarantee regulatory compliance, Know Your Business (KYB) is crucial. Both manual and automated methods have advantages and disadvantages. Here's a brief analogy:

Method Advantages Drawbacks
Manual KYB Thorough oversight Time-consuming, prone to errors, not scalable
Automated KYB Fast, accurate, scalable, real-time updates May need manual input for complex cases
Hybrid Approach Balances accuracy and efficiency Requires integration of both methods

 

detailed analysis of kyb and ubo softwares

Who Should Undertake KYB Checks?

Any regulated business that provides services to corporate clients or legal entities is required to perform KYB (Know Your Business) checks.

This includes, but is not limited to:

Sector Examples
Banks & Financial Institutions Commercial banks, corporate lending, trade finance
Fintechs & Payment Providers B2B payment platforms, neobanks, e-money institutions
Cryptocurrency Companies Crypto exchanges, wallet providers, and DeFi platforms serving legal entities
Law Firms & Notaries Especially those involved in company formation or real estate transactions
Real Estate Companies When dealing with corporate buyers, shell companies, or offshore clients
Accounting & Auditing Firms Corporate tax planning, offshore structuring, fund administration
B2B SaaS Platforms When offering financial or legal services to businesses

 

Conducting KYB checks is probably mandated by law if your company onboards, deals with, or provides services to corporate clients.

KYB vs. KYC – Key Differences 

Despite their similarities, KYB (Know Your Business) and KYC (Know Your Customer) have different functions in compliance management:

Aspect KYC KYB
Target Individuals Corporate clients/business entities
Focus Identity verification and risk scoring Ownership, UBO identification, and corporate structure
Tools ID verification, biometrics Registry lookups, shareholder mapping, document verification
Timing At onboarding, periodic reviews At onboarding; periodic reassessments

 

It is noteworthy that in order to evaluate the risk of UBOs and senior management staff, KYB frequently calls for extra KYC procedures.

Global KYB Regulations You Should Know

Businesses must comprehend and abide by these jurisdiction-specific rules in order to reduce risks and improve transparency in their Know Your Business (KYB) procedures. 

Jurisdiction Regulations / Guidelines
EU AMLD6, EBA Guidelines, UBO Transparency Register
United States FinCEN Customer Due Diligence Rule, Corporate Transparency Act (2024)
United Kingdom Money Laundering Regulations, Companies House UBO Registration
Singapore MAS AML/CFT Notices & Guidelines, UBO Declaration Requirement
Australia AUSTRAC Beneficial Ownership Reporting Rules, AML/CTF Act
Canada PCMLTFA (Proceeds of Crime Act), OSFI Guidelines B-8, Federal Beneficial Ownership Registry
United Arab Emirates UAE AML Law (2021), UBO Disclosure Rules by Ministry of Economy, CBUAE Guidelines
India PMLA (Prevention of Money Laundering Act), RBI KYC Directions, UBO Rules
Hong Kong AMLO (Anti-Money Laundering Ordinance), Companies Registry UBO Filing
Switzerland FINMA Circulars, AMLA (Anti-Money Laundering Act), Beneficial Ownership Due Diligence
Brazil COAF Regulations, CNPJ UBO Requirements, AML Law 9.613/98
South Africa FIC Act (Financial Intelligence Centre Act), UBO Disclosure Obligations

 

Best Practices for Efficient KYB Checks 

Efficient KYB check implementation is essential for striking a balance between thoroughness and flexibility. Take into account these tactics:

Use APIs to automate verification 

Simplify the verification procedure by incorporating APIs that establish direct connections with official commercial registries. Use APIs to standardise UBO (Ultimate Beneficial Ownership) data as well, which will cut down on processing times and eliminate human error.

Make Use of Real-Time Screening 

Use cutting-edge technologies that constantly check and filter companies and people against databases of politically exposed persons (PEPs), watchlists, and international sanctions lists. This lowers the risk of hanging around with high-risk people or organisations and guarantees that you stay in compliance in real time.

Models of Risk-Based Scoring 

Make use of AI-powered risk assessment tools; these models let you swiftly rank high-risk entities and give compliance teams useful information so they can better concentrate on important cases.

Produce Comprehensive Documentation 

Create and preserve well-organised audit trails that record every stage of the compliance lifecycle. In addition to improving internal reviews, these documents streamline regulatory audits and guarantee that you can produce proof of your compliance procedures when needed.

Create Ongoing Monitoring 

Put in place mechanisms that offer continuous oversight of modifications to a company's ownership, legal status, or regulatory exposure. This proactive strategy keeps you ahead of possible risks or fines and enables you to quickly adjust to changing compliance requirements.

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How Sanction Scanner Enhances KYB Compliance 

With the following features, Sanction Scanner specialises in assisting businesses in efficiently managing KYB workflows:

Global Reach

You can confirm companies in more than 200 countries. 

UBO Transparency

You get real-time UBO identification and screening. 

Workflow Automation

For smooth KYB execution, Sanction Scanner helps you integrate with databases and registries. 

Constant Monitoring

To keep tabs on ownership, modifications to the law, and possible exposure to the blacklist. 

Audit-Readiness

You can easily comply with AML regulations by creating comprehensive risk reports. 

Using tools like Sanction Scanner ensures complete regulatory compliance while also improving the speed, accuracy, and scalability of KYB operations.

FAQ's Blog Post

KYB refers to the process of verifying the legitimacy and ownership of companies to prevent financial crimes and ensure regulatory compliance.

KYB helps financial institutions identify shell companies and high-risk entities, reducing the risk of money laundering and fraud in B2B operations.

Common KYB documents include business registration certificates, shareholder lists, UBO details, company structure charts, and tax identification numbers.

KYC focuses on verifying individual customers, while KYB targets businesses, aiming to verify company legitimacy, ownership, and risk level.

Financial institutions, fintech companies, payment service providers, and other regulated entities are required to conduct KYB checks on their business clients.

Failure to perform KYB checks can result in regulatory fines, reputational damage, and exposure to financial crime and fraud.

By verifying company details and ownership, KYB helps identify fake businesses, shell companies, and fraudulent entities before onboarding.

Yes, many organizations use automated KYB solutions to collect, verify, and monitor business data in real time, improving efficiency and compliance.

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