Know Your Seller (KYS): A Key Regulatory Requirement

Whether you are a fintech, an ecommerce marketplace, or a B2B platform, seller verification is now a primary need for legal, financial, and reputational security. 

Online marketplaces require deep scrutiny to filter fraudulent sellers and bad actors who list stolen goods and misrepresent items.  

Businesses need to verify and screen sellers, vendors, and suppliers before contracting with them to avail their services. There are various seller-centric compliance standards that require a business to employ significant measures for seller verification. These regulations aim to prevent financial crimes, ensure ethical sourcing, and manage emerging risks such as fraud, sanction exposure, and human rights violations.  

What is Know Your Seller (KYS)?

Know Your Seller (KYS) refers to the steps that an online marketplace takes to verify a third-party seller in terms of its legitimacy, reliability, and product quality before onboarding. 

Similar to Know Your Customer (KYC) and Know Your Business (KYB), the KYS is a verification process that enables businesses, fintechs, and online marketplaces to evaluate third parties to ensure that they’re who they claim to be and pose no threats to a business. 

Where Know Your Business (KYB) and Know Your Customer (KYC) are primary requirements for businesses to deal with their individual and business clients, Know Your Seller (KYS) holds a key value. Online marketplaces, fintechs, enterprises and B2B organizations must verify third-party sellers before onboarding them.  

Regulatory Force Behind KYS Requirement 

Government bodies and regulatory authorities devise various regulations to mitigate financial crimes and maintain a safe and sound ecosystem. When it comes to online marketplaces, fintechs, and businesses that deal directly with third-party sellers, there is a need to employ significant measures that allow compliance with seller-centric standards. These steps prevent fraud and ensure ethical sourcing, which is a key part of regulatory requirements.  

Here are some of the regulations that mandate seller verification for online marketplaces, fintechs, and businesses: 

Environmental, Social, and Governance (ESG) Laws 

ESG regulations such as the Uyghur Forced Labor Prevention Act (UFLPA) in the US (which prohibits the import of goods linked to forced labor) mandate seller verification for businesses. Similarly, the (CSRD) Corporate Sustainability Reporting Directive (EU) requires fintechs to disclose how ESG risks are incorporated. It requires companies to disclose their ESG practices, including the behavior of third-party business partners across the supply chain, for due diligence. 

It mandates the labeling of products based on sustainability. These regulations require companies to verify sellers’ compliance with labor standards, governance practices (including ethical business conduct), and environmental laws for supply chain due diligence.

Through Sellers’ business verification, including checking tax identification number, ownership checks, and screening against sanctions, regulatory enforcements, and ESG violations, KYS ensures that all parties involved in the supply chain meet legal and ethical standards. 

To comply with these regulations, companies need to perform due diligence on sellers to ensure they meet ethical, environmental, and legal standards. This aligns directly with Know Your Seller (KYS) and Know Your Business (KYB) services, which help verify the identity, ownership, and risk profile of business partners. 

Sanction & Regulatory Enforcement Compliance 

Online marketplaces are under growing pressure to employ Know Your Seller (KYS) checks as part of sanctions compliance efforts. 

Authorities, including OFAC (Office of Foreign Assets Control), and the EU, warn third-party sellers that even unintentional movement of goods to restricted countries such as Russia, Iran, or North Korea can result in serious consequences.

The Know Your Seller (KYS) process often includes screening sellers against warning lists and regulatory enforcement records as well, which is essential for maintaining a secure and compliant marketplace. It helps identify high-risk sellers involved in fraud, sanctions breaches, or regulatory violations. Hence, the KYS process reduces the chances of reputational damage, legal exposure, or platform abuse.

The Know Your Seller (KYS) process helps marketplaces confirm who their sellers are and check for any links to sanctioned jurisdictions or entities. In addition, it helps understand business ownership and spot unusual trade routes or activities. These checks play a key role in helping platforms avoid violations and enable compliance.

The INFORM Consumer Act 

Under the INFORM Consumer Act, online marketplaces are bound to verify the name, bank account details, and tax identification number of high-volume third-party sellers.  It is the key regulation in the US that mandates seller verification for business. This act helps mitigate fraud and financial crimes by increasing the transparency and accountability of sellers who generate $ 5,000 or more in revenue within a 12-month period or perform 200 or more transactions per year. 

The seller verification process enables compliance with the Inform Consumer Act and protects online marketplaces from fines for noncompliance and reputational damage. 

Why Do Businesses Require the KYS Process?

Nowadays, with advancements in technology, it is very easy to spoof identities and use them for unethical practices. Similarly, many sellers create fake accounts to facilitate their fraud and other illicit activities, including financial crimes. Businesses must perform seller verification to overcome various challenges. Here are a few reasons that highlight the need for Know Your Seller (KYS) verification: 

To Detect Fake & High-Risk Sellers 

Many fake sellers open accounts just to target Fintechs and businesses to obtain large amounts and target them for fraud. They target businesses in the name of advance payments and then disappear.  Therefore, the KYS is necessary for online marketplaces to maintain their credibility and trustworthiness. This process helps to detect fake sellers and overcome fraud. Additionally, the KYS process identifies high-risk sellers who may have links to PEPs, sanctioned jurisdictions, and corrupt entities. It mandates the need for screening sellers against all these records. 

To Meet Regulatory Requirements 

The Know Your Seller (KYS) process ensures compliance with regulatory requirements. By using the KYS process, online marketplaces and Fintechs can identify if a seller is a sanctioned entity. In addition, as a fake seller affects the credibility of a marketplace , the KYS process helps in securing credibility and trustworthiness.  

To Protect Platform Integrity and Consumer Trust

Some sellers have fake listings of products. It not only affects user trust but also the credibility of an online marketplace. Hence, the KYS process enables the overcoming of fake product listings, customer disputes, and reputational damage.  

To Reduce Financial Crime Risks

Some seller accounts work as a channel for money laundering and tax evasion. Dealing with these sellers can result in serious consequences for partner businesses and clients. Therefore, KYS process helps to identify sellers who may be used in laundering funds and hold illicit ownership. 

To Enable Safer Partnerships and B2B Transactions

Fintechs offering embedded finance or B2B payments must ensure that sellers are genuine businesses, not shell companies or front operations. Here, effective seller verification protocols are a primary requirement. 

How can Businesses Implement an Effective KYS Process?

For an efficient KYS process, businesses, fintechs, and online marketplaces are required to use seller verification platforms that connect to global registries and databases. This process should be automated and API-based to overcome manual hassle and fetch data from official business registries automatically. 

Additionally, the KYS platform should access real-time UBO data, which allows for the uncovering of ownership chains of seller businesses.

 Key Use Cases for Know Your Seller 

How Can The KYB Help in KYS? 

The KYB has real-time Ultimate Beneficial Owners (UBOs) data from official business registries to uncover hidden ownership structures. It doesn’t work manually but allows automated APIs integration to fetch data from registries and databases. Additionally, it offers seller verification, as well as screening against global watchlists, warnings, regulatory enforcement, and Sanctions. All these are part of an effective Know Your Seller (KYS) process. 

The KYB platform simplifies the KYS by offering automated access to global UBO data, regulatory watchlists, and real-time seller verification through APIs and eliminates manual onboarding, delays, and helps businesses to better meet compliance requirements. 

With increasing global regulations, such as the UFLPA and CSRD, businesses are expected to verify that their sellers comply with legal and ethical standards. Screening helps prevent repeat offenders from re-entering under new identities, making it a crucial part of responsible seller due diligence. The KYB strengthens the KYS process by offering screening against regulatory enforcement, sanctions, and warnings.