Know Your Business (KYB)

An Ultimate Beneficial Owner (UBO) is an individual who has control over a company or legal entity and benefits from its transactions, typically holding 10-25% of a company’s shares or voting rights. UBOs are an important part of the KYB process because they have to be identified, verified and monitored to ensure that the company and its related persons aren’t involved in any illegal activities. 

The Final CDD Rule mandates that businesses like banks, fintechs, commodities brokers, mutual funds, securities dealers and other financial institutions should comply with KYB rules. However, other regulations, like the EU’s 5th AML Directive requires crypto marketplaces, gambling operators, auditors, tax advisors, asset managers, notaries, and other financial entities to perform KYB checks for compliance.

The CDD Final Rule doesn’t outline the exact procedures for conducting KYB checks.

However, many organizations stick to a unified KYB approach and follow these guidelines:

• Verifying the business.
• Identifying its ultimate beneficial owners (UBOs).
• Keeping customer information updated and monitoring risk continuously.

That means KYB checks consist of different measures, including collecting company information/additional documents, cross-referencing this data with reputable sources, like government agencies, and screening and monitoring related individuals, for example, against PEPs and sanctions lists.

To comply with KYB requirements, companies need to collect and verify the following data: 

• The company’s legal name.
• The company’s operating address.
• Business registration status.
• Licensing documentation.
• UBO information for their verification.

Sanctions screening is the process of reviewing various sanctions lists in order to detect sanctioned entities, both companies and individuals, and avoid starting business relationships with them. In KYB compliance, this means systematically checking individuals, companies, and their transactions against sanctions lists. This helps comply with KYB/AML requirements and avoid sanctions breaches or reputational damage.

KYB compliance can be a hassle, especially if you operate in different markets since regulations differ and evolve. Due to large data sets, compliance officers need to review different documents and databases. The most effective way to minimize bureaucracy is to implement KYB automation — some sort of automated software — that screens PEPs, sanctions lists, and watchlists, conducts adverse media checks, and helps automate the onboarding process of both corporate and individual clients.