What is KYB and KYC?

In finance, verifying both customers and businesses is key to compliance and risk management. KYB and KYC are the specific tools that businesses and organisations must use to help minimise the risks of online fraud targeting their customers. They are compulsory within the financial sector, and recommended to additional industries, to help prevent fraud.

What is KYB and KYC?

KYB is Know Your Business, which means verifying businesses. That’s understanding the business structure and ownership, to ensure legitimacy. KYC is Know Your Customer, which means verifying individual customers, to ensure their identity is real and to prevent fraud and comply with regulations.

KYB meaning

KYB is the business verification process that identifies the business’s ownership structure and ultimate beneficial owner (UBO). A risk assessment is also conducted, which checks for sanctions, criminal records and adverse media reports. This is to ensure the business in question is legitimate and not fraudulent.

KYC meaning

KYC is the individual customer verification process. Read more about KYC for financial institutions in our related article.

What is the difference between KYC and KYB verification?

The main difference between KYB and KYC is the focus. KYB is on businesses, requiring information on ownership and operations, while KYC is on individuals, covering personal identification and financial behaviour. This results in different types of information being collected and analysed.

Here are examples of the types of information collected during KYB checks:

Business identity information

• Business Name and Registration: The official name and registration number of the business as registered with the government.
• Business Structure: The type of legal entity: corporation, partnership, sole proprietorship, etc.
• Legal Entity Identifier (LEI): A unique identifier for legal entities involved in financial transactions.

Ownership and control

• Ultimate Beneficial Owners (UBOs): Individuals who own or control the business, usually those with 25% or more ownership.
• Management Details: Key executives and directors, their identification and background checks.

Financial information

• Financial Statements: Recent financial statements to check the business’ financial health and stability.
• Bank Account Information: Business bank accounts to verify banking relationships and transaction patterns.

Operational information

• Business Address: Business headquarters and any other operational addresses.
• Nature of Business: Description of business activities, industry and services or products offered.

Regulatory compliance

• Licences and Permits: Proof of required licences and permits to operate in the jurisdiction.
• Sanctions and Watchlists: Checks against global sanctions lists, watchlists and adverse media for legal or regulatory issues.

Verification documents

• Articles of Incorporation: Documents that establish the business and outline its purpose, structure and governance.
• Tax Identification Number (TIN): Business’s tax ID for verification and tax compliance.

By collecting and verifying this information, banks can ensure they are dealing with legitimate businesses and comply with regulations to prevent fraud, money laundering and other financial crimes.

KYB and KYC using mobile numbers

Many institutions are now turning to automated and digital compliance solutions. These advanced tools are more efficient, accurate and scalable. They also reduce risk and ensure compliance for financial institutions.

Mobile number data can be used to automate parts of both your KYC and KYB checks without compromising the information provided or the quality of your checks. Our Verify API uses trusted data from around the world to link a person to the mobile number provided by a customer, to check if it is real and active.

Regulatory landscape for KYB and KYC

Globally KYB and KYC are governed by a complex regulatory framework. In the US, EU and UK, there are specific regulations that outline the requirements for compliance. Institutions must navigate these regulations carefully to avoid penalties and meet the standards.

What are the USA KYC/KYB regulations?

In the USA, KYB and KYC are governed by several laws and regulatory bodies:

USA KYC checks

• Bank Secrecy Act (BSA): Requires financial institutions to assist in detecting and preventing money laundering.
• USA PATRIOT Act: Enhances KYC and requires customer identification programmes (CIP) to verify an individual’s identity when opening an account.
• Anti-Money Laundering (AML) Compliance: Financial institutions implement AML programmes including KYC to monitor and report suspicious activities.

USA KYB checks

• FinCEN (Financial Crimes Enforcement Network): Requires the collection of beneficial ownership information for legal entities through the Customer Due Diligence (CDD) Rule.
• Corporate Transparency Act (CTA): Requires companies to report beneficial ownership information to FinCEN to increase transparency and combat illicit activities.

These regulations aim to prevent money laundering, terrorist financing and other financial crimes by verifying individual customers and business entities thoroughly.

What are the United Kingdom KYC/KYB regulations?

In the United Kingdom, KYB and KYC are governed by several laws and regulatory frameworks:

UK KYC checks

• Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017: Financial institutions implement customer due diligence (CDD) measures.
• The Proceeds of Crime Act (POCA) 2002: Reporting and prevention of money laundering.
• Financial Conduct Authority (FCA) Regulations: Guidance for financial institutions to identify, assess and manage financial crime risks.

UK KYB checks

• Companies Act 2006: Companies must maintain accurate information about their ownership and control structure.
• People with Significant Control (PSC Register): Companies must keep and maintain a register of people with significant control over the business to increase transparency and accountability.
• Corporate Transparency and Register Reform: Ongoing reforms to improve beneficial ownership information.

These regulations require financial institutions and businesses in the UK to do thorough due diligence to prevent financial crimes and comply with the laws.

What are the European Union KYC/KYB regulations?

In the European Union, KYB and KYC are governed by a set of laws to prevent money laundering and terrorist financing:

EU KYC checks

• 4th and 5th Anti-Money Laundering Directives (AMLD4 and AMLD5): Requires financial institutions to implement customer due diligence (CDD) procedures, verify customer’s identity and monitor transactions for suspicious activities.
• General Data Protection Regulation (GDPR): Personal data collected during the KYC process must be protected and handled in accordance with data privacy laws.

EU KYB checks

• Beneficial Ownership Directive: Requires identification and verification of beneficial owners of companies and trusts, with entities required to maintain accurate and up-to-date information.
• Corporate Transparency and Anti-Money Laundering Directive (AMLD6): Increased transparency requirements and stricter penalties for non-compliance, with a focus on corporate structure and beneficial ownership.

These regulations aim to increase transparency, prevent financial crimes and require financial institutions to conduct thorough due diligence on individual and business entities.

KYC and KYB compliance

For KYB compliance, institutions need to collect detailed information about the business, verify the information and do ongoing monitoring. For KYC compliance, companies must verify a customer’s identity, assess their risk level and monitor for suspicious activities. This is to maintain compliance and reduce fraud risks.

KYB verification process

The KYB verification process involves the following steps to ensure that businesses are legitimate and compliant:

1. Information Collection: Collect detailed information about the business, name, registration number, address and nature of business.
2. Ownership Verification: Identify and verify the business’s ownership structure, focusing on the Ultimate Beneficial Owners (UBOs). This includes collecting information about individuals who own or control a significant percentage of the company.
3. Document Verification: Verify official documents such as business registration certificates, incorporation documents and financial statements to confirm the business’s legal status and operation.
4. Sanctions and PEP Checks: Screen against global sanctions lists and databases to ensure the business and its owners are not involved in illegal activities. This includes PEPs and adverse media.
5. Risk Assessment: Assess the business risk based on its industry, geographic location, transaction pattern and other relevant factors. Higher-risk businesses may require more due diligence.
6. Ongoing Monitoring: Monitor the business and its transactions for any changes or suspicious activities. This includes regular review and update of the business profile and risk assessment.
7. Compliance Reporting: Keep detailed records of the verification process and report any suspicious activity to the relevant authorities in accordance with regulatory requirements.

These steps are to ensure financial institutions and other regulated entities only deal with legitimate customers, reduce risk and comply with anti-money laundering (AML) checks.

KYC verification process

The KYC verification process involves the following steps to ensure the identity of individual customers and comply with regulatory requirements:

1. Customer Identification: Collect personal information such as name, date of birth, address and nationality. This includes obtaining government-issued identification documents like a passport or driving licence.
2. Document Verification: Verify the provided documents to ensure they are genuine. This may include checking the document’s security features and comparing it with official records.
3. Sanctions and PEP Checks: Screen the individual against global sanctions lists, watchlists and databases to ensure they are not involved in illegal activities or are politically exposed persons (PEPs).
4. Risk Assessment: Assess the customer’s risk based on geographic location, occupation and transaction behaviour. Higher-risk individuals may require more due diligence.
5. Customer Due Diligence (CDD): Do ongoing due diligence to monitor the customer’s transactions and behaviour over time. This includes updating the customer’s profile and reassessing their risk level periodically.
6. Enhanced Due Diligence (EDD): For high-risk customers, do additional verification steps such as more in-depth investigations into their background and financial activities.
7. Ongoing Monitoring and Reporting: Monitor customer transactions for suspicious activity and report any unusual behaviour to the relevant authorities as required by regulatory standards.

These steps help financial institutions to identify and reduce risk and comply with anti-money laundering (AML) and counter-terrorism financing (CTF).

KYB and KYC can be resource-intensive and time-consuming but they are both essential compliance checks. Effective KYB and KYC reduce risk, ensure compliance and improve decision making. However, institutions also face challenges such as high resource demand and process delays.

Should I be using KYB or KYC checks?

In summary, KYB and KYC are crucial to financial integrity. By using advanced compliance solutions such as mobile data intelligence, financial institutions can simplify the verification process, reduce risk and ensure ongoing compliance. This approach not only protects the institution but also their customers and stakeholders.