Anti-Money Laundering regulations set out many ways that businesses (both financial and non-financial) should monitor for and protect against potential money laundering activities. Conducting checks and due diligence for new and existing customers is a vital part of this. Customers can be businesses as well as individuals, and this is where Know Your Business (KYB) regulations come in.
What is Know Your Business (KYB)
Know Your Business (KYB) refers to the due diligence review of a business that a company is dealing with. AML regulations require that checks are carried out on any potential business customer to establish its identity and authenticity. This is to help prevent money laundering or terrorist financing activities.
What is the difference between KYB and KYC?
Know Your Business (KYB) and Know Your Customer (KYC) procedures have much in common. They share the main objective of following AML regulations to make financial transactions safer and prevent money laundering activities. The difference between them is in the type of customers that a company is dealing with.
KYC regulations and procedures are appropriate when the customer or consumer is a named individual. KYB regulations have been developed additionally to deal with cases where the customer is any type of business or corporate entity. Any company offering B2B services will find itself using these KYB regulations.
KYB regulation
KYB requirements are described in national AML regulations. In Europe, this is the Anti-Money Laundering Directive (AMLD). The first directive was released in 1991 and has since been amended several times. The fourth directive (4AMLD), Directive (EU) 2015/849, was adopted in May 2015 and had to be transposed by June 2017. The fifth directive (5AMLD), Directive (EU) 2018/843, followed in 2018 and had to be transposed by 10 January 2020. The sixth directive (6AMLD), Directive (EU) 2018/1673, was introduced in October 2018 and had to be implemented by December 2020. In 2024, the EU adopted a new AML package. The directly applicable AML Regulation (AMLR), Regulation (EU) 2024/1624, applies from 10 July 2027, alongside a new sixth directive, AMLD6 (Directive (EU) 2024/1640). Early regulations had many gaps, including with the identification of the ultimate owners of companies.
The fourth and fifth directives (4AMLD and 5AMLD) significantly updated the treatment of beneficial ownership. The fourth directive required member states to set up central registers of beneficial owners. These rules introduced ultimate beneficial owner (UBO) registers and information requirements.
What are KYB procedures?
The main focus of KYB is to establish the identity and ownership of the company being dealt with. Is it a legitimate company or just a shell company? This will reveal who is benefitting from the financial activities of the business.
KYB checks should identify the ultimate owner of the company and any major shareholders. Details checked and reported should include business addresses, business licenses and registrations, and identification documents of the ultimate business owners. Businesses and individuals should be checked against sanction and Politically Exposed Persons (PEP) lists.
These KYB checks could include using the institution's own sources, government registries, publicly available sources and datasets, and information provided by the customer. Many of the KYB processes and checks these days are digital.
Initial checks when starting a new relationship are important, but so is ongoing monitoring as the relationship develops. Transactions should be monitored, just as under KYC, with unusual or high-volume transactions flagged.