The KYC (Know Your Customer) and KYB processes are two essential compliance processes for B2B companies, designed to verify the identity of their clients and the nature of their activities. They play a crucial role in reducing risks related to money laundering and terrorism financing, thus protecting the integrity of the financial system.

What is KYB and KYC?

KYB and KYC are components of Customer Due Diligence (CDD), a process of verifying identity and monitoring clients. Depending on the identified risk level, these processes help adjust the ongoing monitoring of the business relationship.

What is KYB?

The KYB (Know Your Business) is a verification process applied when a company enters into a business relationship with another company. Unlike KYC (Know Your Customer), which applies to individuals, KYB makes it possible to confirm the identity of business entities and assess the potential risks associated with this collaboration. The KYB is designed to check the legitimacy of companies and identify any opaque structures. used as cover for illicit activities, such as shell companies. 

To ensure a thorough verification, the KYB process includes identifying the company’s ownership structure, directors, and beneficial owners (UBOs). This identification may uncover connections to illegal activities or individuals with risky anonymous connections. KYB also assesses the entity's risk profile by ensuring it and its partners are not on sanctions lists, do not have criminal backgrounds, and have not been associated with negative media coverage that could indicate fraud or reputational risks.

What is KYC?

The KYC (Know Your Customer) is an identity verification procedure applied to individual clients to monitor their behavior throughout the business relationship. Essential for regulated industries such as financial services, insurance, and gambling, KYC helps prevent risks related to money laundering and terrorism financing, as mandated by many national laws. 

This process includes collecting personal data, verifying identity documents, and conducting a thorough analysis of the clients' financial history and context. KYC allows for risk evaluation before granting credit, just as KYB provides a similar evaluation for partner businesses.

What is the difference between KYB and KYC?

The main difference between KYC (Know Your Customer) and KYB (Know Your Business) lies in their respective scopes and targets. KYC is aimed at individual customers and focuses on checking their identity and financial history to detect any suspicious activities, such as money laundering or fraud. On the other hand, KYB applies to relationships with commercial entitiesThe aim is to confirm the company's legitimacy, identify the beneficial owners (UBOs) and assess the associated risks, ensuring that the partner company is not involved in illegal activities.

KYB and KYC regulations

KYB and KYC requirements vary across jurisdictions, but international recommendations have been established by the Financial Action Task Force (FATF), which has developed 40 recommendations. These guidelines provide a global framework to prevent financial crime and ensure that businesses apply adequate verification measures when dealing with individuals (KYC) or businesses (KYB). 

KYB/KYC regulations in the European Union

In the European Union, while each member state adapts its own compliance laws to KYC and AML (Anti-Money Laundering) regulations, EU directives, such as the General Data Protection Regulation (GDPR), govern these practices. In 2021, the EU also proposed a unified AML/CFT regulation to strengthen transparency and reduce financial crime risks within the single market. This framework includes the creation of the European Anti-Money Laundering Authority (AMLA), which is scheduled for 2024 and will centralize regulatory and oversight efforts on KYB and KYC practices within the EU. 

Key requirements for KYB and KYC compliance

The KYB (Know Your Business) and KYC (Know Your Customer) processes, although tailored to businesses and individuals respectively, share common requirements and are essential to ensure compliance and security in business relationships. 

KYB verification process

For B2B relationships, KYB focuses on confirming the legitimacy and integrity of the business partner. Here are the key steps: 

  • Collection of identification information: Gathering the business address, registration documents, and identity of executives. 
  • Legitimacy verification: Checking the validity of the information provided, including verifying the company’s registration records. 
  • Identification of UBO (Ultimate Beneficial Owner): Identifying the real owners of the company to prevent risks associated with shell companies. 
  • Sanctions list and government register check: Reviewing international sanctions lists to ensure the legality of the relationship. 
  • Ongoing transaction monitoring: Proactively detecting any suspicious activities. 
  • PEP (Politically Exposed Person) status check: Identifying any politically influential executives. 
  • Media and social media monitoring: Reviewing the reputation of the business to detect any negative associations.

KYC verification process

For individual clients, KYC aims to validate identity and financial background, ensuring a secure business relationship. Key steps include: 

  • Collection of personal data: Name, date of birth, address, and nationality. 
  • Identity verification: Using personal documents such as passports or ID cards. 
  • Government registry and sanctions list check: Verifying background in global databases. 
  • PEP status check: Identifying any potential political influence. 
  • Financial information gathering: Assessing financial risk.

The challenges and benefits of KYB and KYC

KYB and KYC help protect businesses from fraud threats and identify suspicious activities. These processes also provide essential information for decision-making, such as when assessing risks for loans or B2B BNPL solutions.

Advanced solutions for KYB and KYC

Technological solutions, such as eKYC, facilitate compliance by enabling remote, fast verifications without requiring physical documents. Automated systems offer many advantages: 

  • Increased Efficiency: Fast processing of a high volume of verifications.
  • Improved accuracy: Reduction of human error with algorithms and real-time data. 
  • Scalability: Efficiently managing growing workloads. 
  • Risk reduction: Secure onboarding through thorough verification. 

RollingFunds’ KYB solution simplifies the profiling of B2B customers, reducing the time spent on compliance by up to 90% through continuous monitoring. The flexible platform incorporates advanced algorithms for screening, data storage and risk detection, enabling full automation of the KYB process.