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KYC vs KYB: What’s the Difference?

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Financial institutions must adhere to stringent compliance regulations to prevent financial crimes, including money laundering, terrorist financing, and other illicit activities. Two key processes in this domain are Know Your Customer (KYC) and Know Your Business (KYB). While both serve similar compliance purposes, they differ in scope and implementation. 

This article explores the differences between KYC and KYB, their respective processes, and their importance in regulatory compliance.

What is KYC?

KYC is a regulatory requirement that financial institutions and other regulated entities must follow to verify the identity of their individual clients. The primary objective of KYC is to prevent financial crimes such as money laundering and terrorist financing by ensuring that institutions know who they are dealing with.

KYC processes typically include:

KYC compliance is crucial in maintaining the integrity of financial systems and protecting institutions from regulatory penalties.

What is KYB?

KYB is an extension of KYC that focuses on verifying the legitimacy of businesses rather than individuals. It is designed to prevent financial crimes linked to shell companies, illicit organizations, and high-risk entities.

KYB processes generally include:

  • Verification of business registration documents
  • Identification of Ultimate Beneficial Owners (UBOs)
  • Cross-checking business information against global watchlists
  • Assessing financial risk factors and ownership structures
  • Ongoing monitoring to detect suspicious transactions

KYB is essential for financial institutions, fintech firms, payment processors, and other regulated entities that engage with businesses.

What is the Difference Between KYC vs KYB? 

While both KYC and KYB aim to prevent financial crime and ensure compliance with AML regulations, they differ in scope:

  • Target Entity: KYC focuses on individual customers, while KYB targets businesses.
  • Verification Process: KYC involves personal identity checks, whereas KYB requires verification of company details, ownership structures, and UBOs.
  • Regulatory Requirements: While both are governed by AML laws, KYB has additional layers of due diligence, particularly for high-risk industries.
  • Ongoing Monitoring: KYB may involve more complex risk assessments due to evolving business structures and changes in ownership.

KYC and KYB Checks

To comply with global regulations, businesses implement various KYC and KYB checks, including:

  • Identity Verification: Confirming the authenticity of individuals and businesses through official documentation.
  • Sanctions Screening: Checking entities against government and financial watchdog lists to identify potential risks.
  • Risk Profiling: Assigning risk levels to customers and businesses based on factors such as transaction behaviors, industry type, and jurisdiction.
  • Continuous Monitoring: Utilizing automated compliance tools and AI-driven anomaly detection to identify suspicious activities in real-time.
  • Enhanced Due Diligence (EDD): Applying deeper scrutiny to high-risk customers or businesses, which may involve additional documentation and comprehensive risk assessment.

Fenergo provides advanced KYC and KYB solutions that automate and streamline these checks, reducing manual effort while ensuring full compliance.

KYC/KYB Processes to Achieve Compliance

Achieving compliance with KYC and KYB regulations involves several steps:

  1. Client/Business Onboarding: Collecting and verifying required information through digital identity verification solutions. This includes gathering personal or corporate data and validating it against reliable sources.
  2. Due Diligence: Conducting risk assessments and categorizing clients based on their risk profiles. This process involves analyzing the customer's background, financial activities, and the purpose of the relationship to identify potential risks.
  3. AML Screening: Checking individuals and businesses against global regulatory databases, watchlists, and politically exposed persons (PEP) lists to ensure they are not involved in illicit activities.
  4. Transaction Monitoring: Utilizing AI-driven tools to analyze financial transactions in real-time, flagging suspicious activities that may require further investigation. Continuous monitoring helps in promptly identifying and mitigating potential threats.
  5. Regulatory Reporting: Maintaining comprehensive audit trails and submitting suspicious activity reports (SARs) to relevant authorities when necessary. This ensures transparency and adherence to legal obligations.

Understanding the distinction between KYC and KYB is critical for financial institutions aiming to comply with AML regulations. Implementing a robust compliance framework helps mitigate AML risks at any stage, prevent financial crimes, and ensure regulatory adherence. By leveraging technology-driven solutions like Fenergo, organizations can streamline their KYC and KYB processes, enhancing trust and security within the financial ecosystem.

With Fenergo’s Client Lifecycle Management solutions, financial institutions can efficiently navigate KYC and KYB compliance while enhancing customer experience and operational efficiency. Request a demo today!