Know Your Business

The meaning of Know Your Business (KYB) refers to the due diligence process that businesses undertake to verify and understand the identities and backgrounds of their corporate customers. KYB focuses on gathering information about a company’s legal structure, ownership, beneficial owners, and other relevant details to assess the associated risks and ensure compliance with regulatory requirements. KYB checks are always required upon onboarding new corporate customers and then at intervals based on companies’ specific anti-money laundering and risk policies.

The Know Your Business (KYB) process differs from Know Your Customer (KYC) procedures in that KYC primarily focuses on verifying the identity of individual customers, while KYB concentrates on investigating the business entities which a regulated company conducts transactions with. While KYC usually involves the collection and verification of official ID documents, proofs of address and other personal data, KYB involves assessing the business’s structure, ownership, and other factors to evaluate potential risks and comply with AML regulations specific to business entities.

Typical information required for KYB verification includes details about a company’s legal structure, such as its registration documents, articles of incorporation, ownership and shareholding structure, and beneficial owners. Additionally, financial information, business licenses, and operational history may be requested. The exact information needed may vary depending on regulatory requirements and the nature of the business relationship.

KYB checks rely on multiple sources of information, the primary one being official government registers in the country the business is registered in. Compliance teams might integrate their KYB checks with additional sources such as business directories, commercial databases, and public records. Financial statements, annual reports, and other relevant documents, whose digital copies are often available in the relevant company registry, may also be reviewed.

Various regulations and laws mandate KYB checks to combat money laundering, terrorist financing, fraud, and other financial crimes. These regulations may include Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations, as well as sector-specific compliance requirements. Examples of such regulations include the European Union’s Anti-Money Laundering Directives (AMLD4, 5 and 6), the Corruption, Drug Trafficking, and Other Serious Crimes Act 1992 (CDSA) in Singapore, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in Hong Kong and the USA PATRIOT Act in the United States. Most of these regulations stem from the Financial Action Task Force’s (FATF) Forty Recommendations, first released in 1990 and then updated over time to set a global standard for combating money laundering and terrorism financing.

KYB compliance is typically required across a range of industries and sectors, especially those with higher inherent risks of money laundering or financial crime. This includes financial institutions such as banks, payment processors, and insurance companies. Additionally, sectors such as real estate, legal and accounting services, gaming, and virtual currency exchanges often have obligations to perform KYB checks. The specific requirements may vary based on local regulations and the perceived risks associated with the industry.