What is KYB and why do I need to go through this process?

Know Your Business (KYB) refers to the due diligence of a business that a company is involved with. AML regulations require that every potential business customer be verified for identity and authenticity. This is intended to help prevent money laundering or terrorist financing activities.

KYB regulation

The KYB requirements are described in the national AML regulations. In Europe, this is the Anti-Money Laundering Directive (AMLD). This was first published in 1991 and has undergone several amendments, most recently with the sixth directive (6AMLD) in June 2020. The early regulations had many gaps, including in the identification of the ultimate owners of companies.

The treatment was significantly updated in the fourth and fifth directives (4AMLD and 5AMLD) published in 2017 and 2020. This followed similar KYB updates to US regulations in 2016, introducing new rules for the identification and disclosure of beneficial owner (UBO) information.

What are the KYB procedures?

The main focus of KYB is to establish the identity and ownership of the company you are dealing with. Is it a legitimate company or just a front company? This will reveal who is profiting from the company’s financial activities.

The KYB checks should identify the ultimate owner of the company and any major shareholders. Details checked and reported include business addresses, business licences and registrations, and identification documents of the ultimate business owners. Companies and individuals should be screened against sanctions and PEP (Politically Exposed Persons) lists.

These KYB checks may include the use of the institution’s own sources, government registers, publicly available sources and data sets as well as information provided by the client. Many of the KYB processes and checks are now digital.

The initial checks at the start of a new business relationship are important, but so is ongoing monitoring as the relationship develops. Transactions should be monitored in the same way as KYC, with unusual or large transactions being flagged.

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