When it comes to dealing with corporate bodies and potential clients, business owners must ensure that they are sufficiently protected against risks.
While Business-to-Business transaction is highly encouraged between business owners, some business owners see it as an opportunity to employ the use of fraudulent means. Therefore, every business owner is required to take steps towards having an effective KYB process regulating their transactions.
What is Know-Your-Business (KYB)?
KYB stands for "Know Your Business". It is a process used to verify the identity and authenticity of a business, organization, or individual.
Financial institutions, payment processors, and other organizations use KYB to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
KYB prevents illegal activities from ensuing in a transaction by ensuring that the parties involved are who they claim to be. No business owner wants to engage in transactions with entities that pose a risk to their operations.
Why is KYB Important?
KYB (Know Your Business) is important for several reasons:
a. Compliance with regulations:
KYB is required by many financial and legal regulations, such as AML and CTF laws. By verifying the identity and authenticity of businesses and organizations, KYB helps to prevent illegal activities from occurring.
b. Fraud prevention:
KYB helps to prevent fraud and other illegal activities by verifying the identity of businesses and ensuring that they are operating legally. This helps to reduce the risk of fraud and other illegal activities and makes it easier for organizations to detect and prevent fraud if it occurs.
c. Building trust:
KYB helps businesses and organizations to build trust with their customers and partners. By verifying their identity and demonstrating that they are operating legally and ethically, businesses can demonstrate their commitment to responsible and transparent operations.
d. Reputation protection:
KYB helps businesses and organizations to protect their reputation by reducing the risk of fraud, illegal activities, and other negative outcomes. By verifying the identity of businesses and ensuring that they are operating legally, KYB helps to promote a safe and secure business environment.
What Type of Business is KYB For?
KYB (Know Your Business) is a requirement for a wide range of businesses. People commonly limit its use to only banks and financial institutions; however, it is required for other industries as well. They may include:
- Estate agents
- Financial institutions
- Payment processors
- Auditors
- Digital currency exchanges
- Gaming companies
- Tax advisors
- E-commerce businesses
Estate agents sit at the top of that list for a reason. Property is one of the most effective integration routes for laundered money, which is why AML due diligence in real estate now requires agents and developers to verify the company behind a purchase, its directors and its beneficial owners, not just the name on the offer.
The purpose of KYB is to verify the identity and authenticity of businesses and organizations and to ensure that they are operating legally and ethically.
As such, KYB is applicable to any business that is required to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
It is also for businesses who want to demonstrate their responsible and transparent manner of operation to customers and partners.
What are the Steps to an Effective Know-Your-Business Process?
The KYB process has seven steps: verify the entity exists in the registry, confirm its registration status and standing, identify the directors and officers, map the ownership structure down to ultimate beneficial owners, screen the entity and those owners, assess the business risk, then monitor for changes in ownership or status.
Each one answers a different question, and skipping any of them leaves a specific gap.
1. Verify the Entity Exists in the Registry
Confirm the company is actually registered, using the official source rather than documents the customer supplied. In Nigeria that means the Corporate Affairs Commission; in the UK, Companies House; in South Africa, the CIPC.
A certificate of incorporation handed to you in a PDF proves nothing until it matches the registry. This is the step that catches the shell created last week and the company that never existed at all.
2. Confirm Registration Status and Standing
Existing is not the same as being in good standing. Check whether the entity is active, dormant, in liquidation, struck off, or delinquent on annual filings.
A company that stopped filing returns three years ago is still in the registry. It is not a counterparty you want, and a registry lookup that only confirms existence will pass it.
3. Identify the Directors and Officers
Pull the current directors and officers from the registry and verify each one as an individual: name, date of birth, identification. This is where KYC sits inside KYB.
Check the appointment dates too. A wholesale change of directors shortly before the business approached you is a signal worth pausing on.
4. Map the Ownership Structure to Ultimate Beneficial Owners
Trace ownership through every layer until you reach natural persons. Corporate shareholders are not an answer, they are another layer to open.
Nigeria's threshold is 5%, not the 25% many vendors assume. Under the PSC Regulations 2022, a person with significant control means direct or indirect holding of at least 5% of issued shares, interests or voting rights, and person with significant control carries the same meaning as beneficial owner. The Open Central Register at bor.cac.gov.ng is free and publicly searchable by company name, registration number or PSC name.
Where the trail runs into a jurisdiction with no public registry, record where it stopped rather than treating incomplete as clear.
5. Screen the Entity and Its Beneficial Owners
Screen the company and every UBO and director you identified against sanctions lists, PEP data and adverse media. The entity and the people are separate screening runs.
One thing name screening alone cannot do: under OFAC's 50 Percent Rule, a company owned 50 per cent or more in aggregate by blocked persons is itself blocked without appearing on any list. Catching that needs the ownership map from the previous step, which is why the order matters.
6. Assess the Business Risk
Combine what you now know into a rating: sector, jurisdictions of operation, ownership complexity, expected transaction profile, screening results, and whether the structure has an obvious commercial logic.
Complexity without purpose is the signal here. A cleaning company in Abuja owned through three holding companies in two jurisdictions is not necessarily criminal, but it needs an explanation before you accept it.
7. Monitor for Changes in Ownership or Status
KYB is not an onboarding event. Ownership changes, directors resign, registration lapses, and a UBO can be designated tomorrow.
Set review frequency by risk rating, and trigger reviews on events rather than only on the calendar: a change of control, a new jurisdiction, a lapsed filing, a fresh adverse media hit. Continuous screening covers the sanctions half. Registry changes need their own watch.
What information is required for KYB verification?
The information required for KYB (Know Your Business) verification can vary depending on the specific organization and the regulations it is required to comply with. However, some common pieces of information that may be required include:
- 1. Business name and registration information
- 2. Contact information for the business, including address, phone number, and email
- 3. Information about the business owners and key personnel, including their names, addresses, and government-issued identification numbers
- 4. Business activities, products and services offered, and geographic locations of operation
- 5. Documentation to support the ownership and control structure of the business, such as articles of incorporation and shareholder agreements
- 6. Financial information, which will include bank account information and transaction history
- 7. Information on any previous criminal or regulatory actions against the business or its owners
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- Our article on KYB verification details How KYB Verification Works
What happens after the initial KYB procedure?
After the initial KYB (Know Your Business) procedure, the business or organization will usually be subject to ongoing monitoring and verification procedures.
This helps to ensure that the business remains compliant with regulations and that any changes or issues that arise are identified and addressed in a timely manner.
Some common ongoing KYB activities include:
- Regular updates of business information, including changes to ownership, management, or location
- Monitoring of financial transactions to detect any suspicious activity
- Reviews of customer or partner relationships to assess the risk of illegal activities
- Periodic re-verification of business information to ensure its accuracy and completeness
- The frequency and nature of these ongoing activities will depend on the specific regulations and requirements that the business is subject to, as well as the level of risk associated with its operations.
Conclusion
An effective KYB process is critical for compliance with AML regulations and protecting your business from financial crime.
By following these steps, you can ensure that your customers are properly vetted, your risks are properly assessed, and your business remains compliant and secure. Regularly reviewing and updating your KYB policy and procedures will also help to ensure that your process stays effective and up-to-date as regulations and business practices change.
The role of technology in keeping an effective KYB policy cannot be overemphasized. With efficient tools to help organizations handle their risk assessments, Youverify offers help to a number of leading companies.
See how 100+ leading companies use YV OS for KYB and AML screening of customers for compliance and real-time risk detection. Request a demo today.
