Know Your Business (KYB) is a due diligence process undertaken by businesses to assess their clients’ identity, legitimacy and associated risks. It is similar to Know Your Customer (KYC) verification. However, the latter focuses on individuals while KYB is implemented for organizations and corporate entities.

The KYB process involves understanding whether the business is legitimate, discovering any sanctions against the company and identifying and verifying its ultimate beneficial owner (UBO).

Objectives of KYB

KYB aims to ensure that companies understand who they do business with. The objective is to verify that a business entity is not concealing its owner’s identity for unlawful reasons, such as laundering money, funding terrorism or committing tax fraud.

Key elements of KYB

Here are the core elements of KYB verification:

· Business identification: Details about the business entity, including its legal name, company type, registration information, previous name, ultimate beneficial owner (UBO) and organizational structure.

· Verification: Validating the accuracy of the provided information via official documentation or third-party databases.

· Risk assessment: Evaluating the potential risks associated with the business relationship, including financial stability, standing, and compliance with prevailing laws.

KYB regulations (AMLDs)

KYB regulations help businesses fulfil their obligations under Anti-Money Laundering Directives (AMLDs). These directives outline the legal requirements for customer due diligence (CDD) in business relationships.

Although each member state can form its own KYB regulations, the EU has issued a series of AMLDs to establish a framework. The first KYB requirements were mentioned in the 4AMLD, including the creation of a UBO registry and CDD requirements. Subsequent directives have continued to add to and refine these requirements.

How to perform KYB

The KYB verification process involves these steps:

· CDD: Conducting thorough research to gather information about the business entity.

· UBO search: Identifying and verifying the individuals with a significant company stake or for whom business is conducted.

· Sanctions screening: Checking whether the business or its UBOs are listed on any sanction lists or watchlists.

· PEP screening: Checking politically exposed person (PEP) databases to see if any high-risk clientele are associated with the business.

· Account monitoring: Continuously monitoring the business relationship for any changes or suspicious activity.

· Reputation monitoring: Monitoring media and other sources for any negative news or developments related to the business.

Benefits of KYB

KYB benefits regulated organizations, such as banks and investment firms, in the following ways:

· Compliance: Ensures compliance with regulatory laws and AMLDs.

· Greater trust and transparency: Builds trust with clients and partners by demonstrating a commitment to CDD and transparency.

· Preventing crimes: Mitigates the risk of financial crimes, such as fraud, money laundering and terrorist funding, by preemptively identifying and assessing threats.

*Disclaimer: This content does not constitute legal advice. The suitability, enforceability or admissibility of electronic documents will likely depend on many factors such as the country or state where you operate, the country or state where the electronic document will be distributed as well as the type of electronic document involved. Appropriate legal counsel should be consulted to analyze any potential legal implications and questions related to the use of electronic documents.