Know Your Business (KYB) is the process of verifying the identity, legitimacy, and ownership structure of a business entity before establishing a commercial relationship. KYB ensures organizations don't inadvertently do business with shell companies, sanctioned entities, or businesses involved in money laundering and other financial crimes.
While KYC (Know Your Customer) focuses on verifying individual identities, KYB extends these principles to business entities—confirming that a company is what it claims to be and identifying the people who ultimately own and control it.
Why KYB Matters
Business verification has become essential for three interconnected reasons:
1. Regulatory Compliance
Financial institutions, payment processors, and other regulated entities face legal obligations to verify business customers. Regulations including the Bank Secrecy Act, Corporate Transparency Act, and EU Anti-Money Laundering Directives mandate due diligence on business relationships.
Failure to comply can result in significant fines, reputational damage, and loss of operating licenses.
2. Financial Crime Prevention
Anonymous shell companies have historically enabled money laundering, sanctions evasion, tax fraud, and terrorist financing. The Panama Papers and similar leaks revealed how opaque corporate structures facilitate illicit finance at scale.
KYB directly addresses this by requiring identification of Ultimate Beneficial Owners (UBOs)—the natural persons who truly own or control a business, regardless of what names appear on official documents.
3. Business Risk Management
Beyond compliance, KYB protects organizations from:
- Fraud: Verifying a business exists and operates legitimately before extending credit or entering contracts
- Reputational risk: Avoiding association with sanctioned or criminally-connected entities
- Operational risk: Ensuring business partners can fulfill their obligations
What Does KYB Verification Include?
A comprehensive KYB process typically verifies:
- Legal business name and any trade names (DBAs)
- Business registration number and jurisdiction
- Date of incorporation and current status (active, dissolved, etc.)
- Registered address and principal place of business
- Business type and industry classification
Ownership Structure
- Beneficial ownership—individuals holding 25%+ ownership or significant control
- Corporate ownership chains for entities owned by other entities
- Complex structures including trusts, partnerships, and holding companies
Compliance Screening
Documentation
- Certificate of incorporation or formation
- Articles of incorporation/organization
- Operating agreements or bylaws
- Proof of address
- Government-issued IDs for beneficial owners
KYB vs. KYC: What's the Difference?
Subject
- KYC: Individual persons
- KYB: Business entities
Identity verification
- KYC: Government ID, biometrics
- KYB: Business registry, incorporation docs
Ownership
- KYC: N/A
- KYB: UBO identification required
Complexity
- KYC: Relatively straightforward
- KYB: Can involve multi-layered corporate structures
Ongoing monitoring
- KYC: Individual activity
- KYB: Entity changes, ownership transfers, adverse media
In practice, KYB often includes KYC for the beneficial owners—you're verifying both the business and the individuals behind it.
KYB requirements apply broadly across regulated industries:
- Financial institutions: Banks, credit unions, investment firms
- Payment companies: Payment processors, money services businesses, fintechs
- Cryptocurrency exchanges: Virtual asset service providers (VASPs)
- Insurance companies: Especially for commercial policies
- Real estate: Title companies, real estate agents (in many jurisdictions)
- Legal and accounting firms: When forming entities or handling transactions
- Any B2B company: Extending credit, entering significant contracts, or operating in regulated sectors
The KYB Process: Step by Step
Gather business details from the customer, including legal name, registration information, address, and beneficial ownership declarations.
2. Entity Verification
Confirm the business exists by checking official business registries (Secretary of State filings, Companies House, etc.) and matching submitted information against authoritative sources.
3. Beneficial Owner Identification
Identify all individuals who own 25% or more of the company or exercise significant control. For complex ownership structures, trace through corporate layers to find the natural persons at the top.
4. Screening
Check the business and its beneficial owners against sanctions lists, PEP databases, and adverse media sources.
5. Risk Assessment
Evaluate overall risk based on industry, jurisdiction, ownership complexity, and screening results. Apply enhanced due diligence (EDD) for higher-risk relationships.
6. Ongoing Monitoring
KYB isn't one-and-done. Continuously or periodically monitor for changes in business status, ownership, or adverse information.
KYB Challenges
Organizations face several obstacles in implementing effective KYB:
- Data fragmentation: Business information is scattered across thousands of registries worldwide with varying data quality and accessibility
- Ownership opacity: Complex corporate structures and nominee arrangements can obscure true ownership
- Cross-border complexity: Different jurisdictions have different registration requirements and beneficial ownership definitions
- Keeping current: Business information changes—companies are acquired, owners change, registrations lapse
The Future of KYB
KYB is evolving rapidly as regulations tighten and technology improves:
- Beneficial ownership registries: More jurisdictions are creating centralized UBO databases (UK's PSC register, EU beneficial ownership registers, US BOI reporting)
- Automation: API-driven verification enables straight-through processing for lower-risk businesses
- Perpetual KYB: Moving from periodic reviews to continuous monitoring with real-time alerts
- Standardization: Industry initiatives like the Wolfsberg Group are establishing common frameworks
Key Takeaways
- KYB verifies businesses the way KYC verifies individuals
- Beneficial ownership identification is central—knowing who really controls a company
- Regulatory requirements are expanding globally, with significant penalties for non-compliance
- Effective KYB combines entity verification, ownership analysis, screening, and ongoing monitoring
- Technology enables faster, more thorough verification but doesn't eliminate the need for human judgment on complex cases
