What does know your business (KYB) mean?

The Anti-Money Laundering Directive (AMLD) first put KYB regulations into place in Europe in 1991. Since then, the business verification process has gone through a handful of amendments. In June 2020, the sixth directive (6AMLD) was released. This amendment expands the scope of inquiry to include the identification of beneficial owners and related business entities.

The goal of Know Your Business Regulations is to gather basic business information, such as the type of business entity, the business partners involved, and existing business relationships to identify any illicit activities. Specifically, financial companies using KYB are looking for instances of fraudulent activity, like money laundering activities, tax evasion, and financial crime.

The Difference Between KYB and KYC

Know Your Business and Know Your Customer (KYC) procedures have a similar goal to reduce criminal activity and money laundering. However, the main difference between KYB and KYC is the type of customer that the company is verifying. KYC regulations engage in identity verification of individuals, where KYB handles businesses and corporate entities.

Common KYB Procedures and Regulations

KYB requires companies to identify certain information about businesses they are working with. Let’s go through some of these requirements.

Verify Business Information

Business verification involves confirming the company’s legal name, the company’s legal operating address, the company’s current legal standing, and verification of required licenses and permits. To find this information, you may need to request business registration documents and search global corporate registries.

Verify Business Beneficial Owners

Shareholders that have more than 25% ownership in the company need to be documented. Information needed might include their full legal name, their address, and an identifying number.

Maintain and Update Information

Know Your Business regulations require financial companies to update information on an ongoing basis. For example, if the company forms a new business relationship, it should be well-documented. Similarly, address changes, legal status alterations, and new owners should also be documented.

Maintaining KYB information also looks to identify any suspicious or illegal activity. Your team should regularly review the transactions of each business and promptly alert regulators if anything suspicious is uncovered. Using a software program like Eftsure can accelerate this process to ensure all payments are verified before they are processed. Failure to report potential financial crimes can result in serious fines and penalties for your business.

Maximizing KYB Compliance

Ensuring your business is implementing KYB best practices allows you to maximize your compliance and streamline the entire business process. Here are some strategies:

Assign a Compliance Officer

Having an individual tasked with KYB compliance is a crucial component. This person will be the go-to individual for any compliance questions and will regularly verify business processes and compliance. Your compliance officer should have a deep understanding of AMLD and the regulations that apply to your organization.

Train Employees

Even if you have a compliance officer overseeing your KYB procedures, employee training is still important. With the proper employee training, your team will understand what information they need from prospective and current customers. In addition, they will be able to detect and prevent fraudulent transactions and money laundering with more ease. You should have both written and live training sessions.

Develop Internal Compliance Processes

Working with your compliance officer, develop standardized internal compliance processes. For example, having a list that employees must follow when onboarding a new customer. This not only streamlines your processes but also helps guarantee compliance with KYB requirements.

Use Independent Testing

When you have a team working closely on compliance, it can be difficult to see issues from an unbiased perspective. Having an independent compliance check from an outside agency or individual helps you identify weaknesses in your policies. Catching these issues early is crucial to avoid any problems and detect financial crime right away.

Summary

• Know Your Business (KYB) is a set of requirements that financial institutions and related businesses must follow to prevent and detect money laundering activities and other financial crimes.
• KYB policies include verifying business information, identifying beneficial owners, and monitoring transactions for suspicious activities.
• Assigning a compliance officer, providing employee training, developing internal processes, and using independent testing are four ways to improve your compliance with AMLD.