Know Your Business (KYB): Ultimate Compliance and Security Guide

Know Your Business (KYB) helps companies understand every aspect of the businesses they work with. In the past few years,56% of U.S companies were targeted by B2B payment fraud because Know Your Business (KYB) processes were not in place. It assists an organization in verifying corporate and personal information related to the directors, stakeholders, and Ultimate Beneficial Owners (UBOs) of a client organization. 

By utilizing a KYB system, one may be able to detect red flags for the financing of terrorism or money laundering if suspicious activity is detected. It serves organizations in fraud prevention and compliance solutions.
Businesses often use the Know Your Customer (KYC) service while operating with individuals, as it focuses on customer verification. When dealing with business entities,  KYB verification holds the same value as KYC in regulatory compliance and fraud prevention. 

What is  KYB?

Know Your Business (KYB) is a regulatory compliance solution and process that verifies the legitimacy of a business as part of compliance with Anti-Money Laundering laws and supply chain due diligence. This verification process involves conducting background checks and screening the company’s incorporation details and ownership structures. 

Companies require a KYB service to understand potential entities with which they can start a business relationship. It involves conducting background screenings and verifying shareholders, business owners, suppliers, directors, merchants, and third-party vendors. 

Why Do Organizations Require Know Your Business (KYB) Process?

Despite KYC regulations being in place since 2002, a loophole existed: business relationships received less scrutiny than individual relationships. It was, therefore, possible for criminals to establish shell companies to defraud businesses or, more commonly, to disguise their identities by using legitimate businesses. Since business records were only briefly reviewed, fraudsters can launder money, commit fraud, fund terrorism, and commit other illegal activities without being personally screened.

As part of its Customer Due Diligence Requirements in 2016, the Financial Crimes Enforcement Network (FINCEN) introduced new regulations regarding KYB. The standardised method of verifying the legitimacy of another company allows any business to work with another company.

Effective KYB protocols assist businesses in avoiding conducting business with such entities that are involved in Money Laundering, Terrorist Financing, Tax Fraud, or who are recorded in sanctions lists. 

Key Know Your Business Regulatory Bodies and Rules

Know Your Business is an important part of AML compliance and corporate due diligence. Anti-money laundering compliance goes back to the Bank Secrecy Act (BSA) of 1970. It requires U.S. financial institutions to detect and report cash transactions over $10000 and suspicious activities that might signify financial crimes. This law aims to secure the financial system from criminals and terrorists.  After 9/11 in 2001, the USA PATRIOT Act strengthened anti-money laundering (AML) efforts to overcome terrorism financing. 

The USA PATRIOT Act emphasized the need for stronger due diligence on customers, including both individuals and entities. This prompted financial institutions to comply not only with Know Your Customer (KYC) but also with Know Your Business (KYB) to gain a deep understanding of the businesses they work with. Particularly after the Panama Papers scandal,  organizations must perform business verification.  

Both Global and national authorities enforce Know Your Business (KYB) regulations to prevent money laundering, terrorism financing, and financial fraud. Key regulatory bodies include: 

• The U.S. Financial Crimes Enforcement Network (FinCEN)
  Bank Secrecy Act (BSA) & USA PATRIOT Act
• The Financial Action Task Force (FATF)
• The European Union Anti-Money Laundering Directives (AML
•  EU Anti-Money Laundering Directives (currently 6 AMLD)
• FCA (Financial Conduct Authority)

FinCEN requires a Customer Identification Program (CIP), which mandates the verification of business identity, beneficial owners, and control persons. 

EU AMLDs mandate UBO verification, risk-based due diligence, and documentation of corporate structure.

In the U.S., rules under the Bank Secrecy Act (BSA), reinforced by the USA PATRIOT Act, require businesses to verify the identities of corporate clients and beneficial owners. Similarly, jurisdictions worldwide have mandated Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) procedures, rendering Know Your Business (KYB) a legal necessity in global financial operations.

Why is KYB Verification Important?

Financial institutions need KYB verification to assess fraudulent activity associated with corporate clients. It enables companies to find the appropriateness of other entities before establishing a business relationship with them. Additionally, KYB compliance helps businesses determine whether they are dealing with legal or shell corporations, as it checks the legitimacy of companies.

Corporate clients are more complex to work with by their very nature than individual clients. A more comprehensive research approach is required, and it usually involves a variety of screenings, which enables the framework for understanding to be broader.

Businesses require a Know Your Business (KYB) solution for the following reasons: 

• To Comply with Anti-Money Laundering Regulations
• To Comply with Financial Sanctions
• To Comply with Export Controls
• To Comply with Supply Chain Due Diligence Laws

For the Risk Mitigation that may arise from doing business with fraudulent actors.

KYB vs KYC

It is important to note that Know Your Business (KYB) and Know Your Customer (KYC) have many similarities. Their common objective is verification. However, both require different kinds of information to verify. The KYC process involves screening of  Identity Documents like ID Card, Driving License, Person’s name, DOB,  and address (often confirmed from ID card, driving license, and Utility Bill). 

On the other hand, the KYB process involves the following data for verification:

• Date of incorporation
• Place of registration
• Name of Directors
• Articles of Association 
• UBO names right from the official registers
• The company’s official registered address
• Shareholders

Organizations deploy both KYC and KYB processes to ensure the safety of financial transactions and prevent illicit crimes such as money laundering and financial terrorism. Customers or consumers must comply with KYC regulations and procedures if they are named individuals. Furthermore, KYB regulations have been developed to address cases involving corporations or businesses. 

How do KYB Checks Help With Compliance?

As per the Financial Action Task Force (FATF) recommendations, businesses require strict verification to meet laws and regulations. It is mandatory for both financial and non-financial institutions to perform Know Your Business (KYB) verification of potential entities. KYB (Know Your Business) checks ensure screening and evaluation of businesses to comply with anti-money laundering (AML) and counter-terrorism financing (CFT) laws. 

By identifying corporate ownership structures, beneficial owners, and potential risks, KYB checks reduce exposure to fraud, sanctions violations, and regulatory penalties. They also help meet requirements under laws like the Bank Secrecy Act (BSA), the USA PATRIOT Act, and international standards from the Financial Action Task Force (FATF). In short, KYB processes create a strong compliance framework, protect reputations, and build trust in both financial and nonfinancial ecosystems.

What are KYB Procedures?

The Know Your Business verification process includes the following three main components:

• Business verification   
• Identification of the Ultimate Beneficial Owners (UBOs).
• Ongoing monitoring of risk and maintenance of updated customer information

Information Required for Know Your Business (KYB) Verification

AML laws, including the CDD Rule, are complied with due to the KYB process. The following data points must be collected and verified by companies to ensure business verification: 

• Name: The legal name of the company.
• Licensing documentation
• Company Address (One thing to remember is that a company’s operational address may not match the registered address)
• Incorporation Details 
• UBOs and Shareholders Details,

The Know Your Business (KYB) procedure mainly includes: 

• Review and verification of company name and incorporation details across official registries.
• Screening business entities against sanctions, global watchlists, and checking their owners against PEPs to identify risk potential. 
• Screening for potential violations of warnings and regulatory enforcement
• Verification of the place where the company is located. Business operating addresses may differ from the registered address.
• Identification and verification of a corporation’s UBOs (who owns at least 25% of shares or controls the company).
• Checking company shareholders and directors to ensure transparency of business structure, as it enables risk assessment. 
• Ongoing monitoring to check dynamic regulations, sanction regimes, and ownership data to reduce risks of fraudulent tendencies over time.  

Automated Vs. Manual KYB

KYB involves a comprehensive process that involves companies collecting, analysing, and managing vast amounts of data about businesses with which they are affiliated. It is typically time-consuming and hard to do manually.  

On the other hand, the automated KYB process streamlines the verification and workflow. Automated KYB checks involve screening by handling large data volumes and performing background checks seamlessly. In addition to this, an automated workflow ensures compliance and seamless onboarding while verifying companies in real time. Companies become free from manual hassles and streamline their verification process. 

What is Required to Verify a Company?

A company’s identity verification is a comprehensive and essential task. It must be adapted to each entity based on its unique characteristics. Know Your Business verification procedure generally involves the following steps:

Checking of Registration Document 

To determine whether the business is legitimate and active, it is necessary to review the business registration and license. Collecting official details such as company name, registration data, address, and ownership structure makes it easier to verify the company’s existence, as it will provide a ground for thorough screening.

Verifying the Beneficial Owner (UBO)

Understanding a company’s legal status requires a deeper understanding of its members. Specifically, the Know Your Business (KYB) efficient process must be utilised to identify the beneficial owners. By identifying the nature of the Ultimate Beneficial Owner network, partner organizations can ensure detection of hidden UBOs and company shareholders. 

Conducting Due Diligence 

Due diligence involves a thorough investigation and verification of a business’s financial, legal, and operational aspects. It involves company verification and its background screening to determine associated risks with potential business. The due diligence process involves the identification of company stakeholders and ultimate beneficial owners.  If a UBO poses a higher risk, the company would follow the enhanced due diligence (EDD) process for proper risk mitigation. 

Sanctions Screening

It is the process of checking for sanctions imposed on a business or company by a regulatory authority. In addition to AML compliance, businesses must also comply with sanctions regimes, which require reviewing sanctions lists and verifying entities against them.

If a company unknowingly establishes a business relationship with any sanctioned entity, it will suffer Non-compliance penalties and a poor brand image. Therefore, sanction screening is necessary to verify a company before initiating any transaction or dealing for any other purpose, such as investment or partnership. Thus, during the business verification process, sanctions screening is important to check whether the company is part of any sanction list. 

Investigating Adverse Media Coverage

Adverse media screening involves the review of news sources and other media outlets to identify any negative information about the particular business. It enables the review of relationships with suppliers, customers, or other entities and helps in spotting red flags.. For instance, knowing their relationship with suppliers or customers can help measure their risk. By checking adverse media, it is easy to spot if a company holds a negative reputation on the basis of past experiences. 

Determination of PEP (Politically Exposed Persons)

The term PEP refers to politically exposed individuals who hold public positions, making them vulnerable to fraud, corruption, and other abuses. Therefore, companies are exposed to greater risks (mainly if they are UBOs). Thus, verifying whether this type of profile is present in a company verification is necessary. PEPs are at high risk of being involved in illicit activities due to their authority, which mandates their identification and verification.

Checking for Blacklists

Data of individuals and businesses involved in illegal activities (or who have carried out illegal activities) is collected on sanctions lists. Checking whether a corporate client is included on these lists requires analyzing large amounts of information and cross-referencing company names, aliases, and representatives’ identities. For KYB verification, however, this information is extremely valuable.

What are KYB Verification Documents?

Typically, the KYB process involves verification of the following documents on behalf of legal entities:

• Business Registration Certificate (e.g., Articles of Incorporation, Business License)
• Proof of Business Address (e.g., utility bill, lease agreement)
• Tax Identification Number (TIN) / VAT Registration Certificate
• Company Ownership Structure (e.g., corporate tree, shareholder list)
• Identification Documents of UBOs (Ultimate Beneficial Owners) (e.g., passports, national IDs)
• Director and Officer IDs (government-issued identification of company directors)
• Bank Account Verification (e.g., voided check, bank statement)
• Memorandum and Articles of Association (company constitution or founding documents)
• Business Financial Statements (optional for high-risk or regulated businesses)
• Licenses for Regulated Industries (e.g., financial services, healthcare)

Who Needs to Perform KYB?

As per the regulations, financial institutions require KYB verification to overcome financial crimes, specifically money laundering. The final CDD rules mandate KYB verification as a necessity for the following businesses: 

• Banks 
• FinTechs
• Brokers or Dealers 
• Commission Merchants 

However, as per the EU’s 5th AML directive, KYB verification is also mandatory for the following: 

• Crypto Market Places 
• Gambling Operators 
• Tax Advisors 
• Auditors 
• Credit Institutions Asset Managers 

However, industries like e-commerce have less strict AML compliance or due diligence requirements, but still need a KYB process to ensure the legitimacy of their potential business clients. Business verification measures check that all partners or users in e-commerce marketplaces are legitimate and are not selling illegal services or fake items. Negligence in business verification can pose serious risks of financial loss in the form of increased chargeback rates and fake invoices, which are the outcome of dealing with high-risk businesses and fake entities. 

Even if a business is not regulated for KYB verification, it still serves companies in internal AML risk assessment and fraud prevention. 

Benefits of KYB Process

KYB process empowers companies and businesses to streamline their operations by verifying entities thoroughly. KYB checks and reviews all the details and company documents, which we discussed earlier, to ensure transparency and real-time business verification. Inadequate business verification measures can increase the risk of onboarding high-risk entities, or those that are involved in any illicit activity, such as money laundering or financial terrorism. In addition to this, the Know Your Business checks ensure the following benefits: 

Risk Management 

Business verification protocols help in detecting risk profiles as they allow the confirmation of the legitimacy of the business as a whole. The verification process screens the legal status of the company registration. Companies can utilize an automated KYB process, which allows hassle-free screening of the business name, its ownership structure, and registration number across registries. 

Additionally, it helps identify shell companies, fake businesses, and high-risk entities, which mitigates exposure to financial crimes and fraud. 

Through KYB, organizations gain visibility into a business’s ownership, structure, and financial stability, enabling a better evaluation of the potential risks involved in partnerships or transactions. It also helps identify politically exposed persons (PEPs) and sanctioned entities for informed business decisions.

Regulatory Compliance

KYB is a key component in meeting Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations. It helps companies stay aligned with evolving local and international compliance requirements. Non-compliance with regulations may lead to hefty fines and loss of credibility. With KYB in place, businesses reduce legal risk and strengthen their compliance framework.

Streamlined Onboarding

Automated KYB checks accelerate the due diligence process, reduce manual verification, and improve operational efficiency without compromising security standards. A faster onboarding experience also enhances business credibility. Manual KYB process may result in inconsistencies, and it is time-consuming. It slows the onboarding process, which can frustrate business clients and affect overall operational efficacy. 

Challenges of Know Your Business

Companies do not wish to be found non-compliant with KYB, as they do not want to be penalised and may even be forced into bankruptcy. Know Your Business is, however, a rigorous and complex process, and there are legitimate obstacles that may prevent companies from complying with it. Here you can find some of the challenges that banks and financial institutions face when it comes to KYB.

Information Silos

One of the main challenges in achieving high-performance in-life monitoring is the existence of silos within financial institutions, where not all information is shared equally among the staff. The division of retail banking and corporate banking may sometimes require a compartmentalized approach. However, siloed approaches often result from existing operating patterns, with Know Your Business and risk management teams being isolated from one another regarding information exchange.

Complexity and Less Adaptability

As a result of the growing digitalisation of financial services and constant regulatory changes across numerous jurisdictions, organisations in the financial services industry have had difficulty managing business verification. Using new technology may be difficult for businesses due to a desire to avoid disrupting service and losing high-value clients. 

Time-Consuming 

Manual KYB is time-consuming, as banks continuously verify the information of their business clients and monitor their activities without disrupting the services offered to their clients online. Further checks are conducted on the ultimate beneficial owner’s identity to confirm that they do not appear on sanctions lists. There is a need for a more streamlined automated verification solution that can reduce time and provide quick and accurate business verification.

High  Cost

In the KYB verification process, the greatest challenge lies in obtaining data on the Ultimate Beneficial Owner. Manual data collection takes a long time, and it is very costly as multiple individuals are involved to complete the process. Businesses require automated  tools that enable them to complete verifications in less time.

Real Time Changes 

In this ever-changing regulatory landscape, businesses require solutions that help them to stay ahead of the dynamics. The KYB process often fails to identify real-time changes, resulting in non-compliance and reputational damage.  

How The KYB Know Your Business Can Enhance Your Business Verification Process? 

The KYB has a rich data source that covers comprehensive information on Ultimate Beneficial Owners. UBO data is really a big challenge as it is not easily available to fetch, but The KYB has rich coverage of real-time UBO data from multiple jurisdictions. It empowers organizations to identify who actually owns the business, and checks the legal status of UBO. 

The KYB fetches data from official business registries and ensures company verification to confirm its legitimacy. It screens business registration details, including articles of incorporation, licenses, and address proofs, along with TINs to ensure the legitimacy of entities. It also enables financial and nonfinancial sectors to review company ownership structures (including shareholders, directors, and officers)

Not only this, The KYB is fully automated, which avoids a difficult manual screening process, reduces cost, and assists in meeting regulatory KYB requirements. Traditionally, KYB checks involve manual back-and-forth research and data struggles between multiple sources. Now, with the help of The KYB, businesses can automatically fetch data from government registries in real time and verify third parties. 

The KYB does not stop here; it first screens for directors and Ultimate Beneficial Owners (UBOs), and then screens if those directors and UBOs are Politically Exposed Persons (PEPs), Sanctioned, or Subject to Adverse Media or any Warnings or Regulatory Enforcement. 

In addition to the above advantages, The KYB checks allow continuous tracking of changes in a business’s ownership structure, control, and risk profile, including updates to UBOs, directorships, and legal status on a regular basis. It ensures perpetual business verification. This dynamic oversight ensures that any new risks, such as a newly sanctioned shareholder, a director becoming a PEP, or emerging adverse media, are promptly identified and addressed. 

If you are looking for an accurate, fast, and cost-effective KYB verification solution, try our free demo and review how ‘The KYB’ works for automated business verification.

FAQs

What does know your business mean?

Know Your Business (KYB) means the process of verifying the legitimacy and identity of a company and its key stakeholders. This process allows checking if a business is legally registered, operates transparently, and is not involved in any illicit activity. Financial institutions, FinTechs, and online marketplaces particularly require KYB checks to mitigate fraud and comply with AML regulations.

What is the KYB method?

The Know Your Business (KYB) method involves the collection, validation, and review of business registration documents, ownership details, and licences to validate its legitimacy. It mainly included identity checks of ultimate beneficial owners (UBOs) by screening against watchlists, sanctions, and adverse media. This method ensures risk profiling and contributes to well-informed business relations.

What is a KYB process?

The KYB process starts with document collection (business licence, proof of address, followed by background screening, and finally operates in ongoing monitoring. KYB method tracks changes in ownership, legal status, and risk level to support businesses with regulatory compliance and secure partnerships

What are Some Red Flags to Know? 

Errors in official company documents (which are signs of forgeries),  hidden UBOs, and a mismatch between the company’s office and shipping address, or a lack of a significant credit history, are red flags. You need to remain attentive when conducting KYB verification. One of the most important warning signs is frequent changes of company ownership. It suggests that the entity is attempting to conceal the true individuals behind the business who are involved in illicit activities.