The importance of Know Your Business (KYB) checks: best practices for compliance

kyb check

As financial crime threats evolve, so does the importance of conducting Know Your Business (KYB) checks. In today’s business landscape, regulatory bodies expect compliance officers to conduct a comprehensive KYB check for each company they onboard to ensure compliance with regulations, and have processes in place to mitigate financial crime risks. This article highlights the importance of KYB checks and shares best practices for compliance officers to implement.

What is a KYB check?

KYB checks serve as the first line of defence for businesses against financial crime. It involves the process of verifying the details of a company, its directors, shareholders, and beneficial owners to ensure they are legitimate and do not pose any risks. 

The purpose of a KYB check is to determine whether a business is authentic and not fraudulent by looking at its operational and structural setup, and evaluating this against your firm’s appetite for risk.

How does a KYB check differ from KYC checks?

KYB and KYC checks are similar in practice, but they involve very different components.

KYC checks require information to verify an individual’s personal information such as address, date of birth, and identification documents. For example, a KYC check is performed on anyone opening a consumer bank account in order to ensure their authenticity, allowing the bank to gauge their potential risk. Moreover, KYC checks can also include checking credit reference agencies, verifying whether the individual is a Politically Exposed Person (PEP) and whether sanctions are pending against him or her. 

Every good AML or KYC process is underpinned by relevant laws, regulations and company policies.


However, KYB checks are naturally more complicated due to the fact that they require additional, richer information (which is not always available in the public domain) associated with the business. This may be gathered from sources such as government registries, publicly available sources, databases, or information provided by the business (company number, registered address, etc.)

The importance of KYB checks

A robust KYB process helps compliance officers to prevent potential money laundering, terrorist financing, and other financial crimes. KYB checks are critical in several areas such as onboarding new clients, assessing risks, detecting red flags, and preventing reputational damage. 

KYB checks help compliance officers to verify the legal existence of a business and assess the risks associated with the company, its industry, and country of origin. 

Best practices for conducting a KYB check

Compliance officers need to follow a systematic approach to perform a successful KYB check. Below are some of the best practices to consider: 

  1. Establish KYB policies and procedures: Create KYB policies and procedures that comply with the regulations of the jurisdiction the company operates in. Every company should have a standard set of KYB procedures and documentation requirements for onboarding businesses.
  2. Identify Beneficial Owners: Identifying the beneficial owners of the company is critical to determine the ownership structure of the business and the source of funds. Determine the ownership threshold in the relevant jurisdiction and document the beneficial owner’s details. 
  3. Verify the business’ existence: Verify the legal existence of the business by obtaining the company’s registration details, director information, and other legal documents. Ensure that the business is legitimate and not a shell company. 
  4. Screen for PEPs and sanctions: Of the directors identified, conduct identity and verification checks, and screen for the presence of any politically exposed or sanctioned individuals within the business that may pose a higher risk for corruption and bribery. 
  5. Risk assessment: Perform a risk assessment on the business, its industry, and the jurisdiction it operates in. Evaluate potential financial crime risks associated with the company, such as money laundering, bribery, and corruption. 
  6. Ongoing monitoring: Establish a system of continuous monitoring of the business to detect any changes in the ownership structure, transactions, or adverse media, which may contribute to a change in the risk profile of the business. Using an automated platform will broaden the range of watchlists and screening to ensure ongoing due diligence.

KYB checks are critical in preventing financial crime and ensuring compliance with regulations. As such, compliance officers must ensure that their businesses have a robust KYB process in place to mitigate financial crime risks and protect their business reputation.

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