KYB, or Know Your Business, is the process of thoroughly examining a company that another company is doing business with. AML rules mandate conducting checks on potential business customers to verify their identity and legitimacy. This is crucial in order to prevent money laundering and terrorist financing activities.
Regulation
National AML regulations outline KYB requirements. In Europe, the Anti-Money Laundering Directive (AMLD) governs this. The AMLD was initially introduced in 1991 and has been updated multiple times, with the latest being the sixth directive (6AMLD) in June 2020. Previous regulations lacked clarity, especially in identifying the true owners of businesses.
The fourth and fifth directives (4AMLD and 5AMLD), which were released in 2017 and 2020, brought significant updates to the treatment. These updates were in line with the KYB updates made to US regulations in 2016. As a result, new regulations were implemented to ensure the establishment and public availability of ultimate beneficial owner (UBO) information.
What are KYB procedures?
a process to identify the real owners and beneficial parties behind a company. This helps ensure the company is legitimate and not involved in any suspicious activities. KYB checks involve verifying details like business licenses, owner IDs, and checking against sanction lists. These checks use a combination of public records, information from the customer, and the institution’s own resources. They are crucial not only when starting a new business relationship but also for ongoing monitoring.
KYB vs. KYC
KYB and KYC procedures have many similarities. Both aim to comply with AML regulations, ensuring secure financial transactions and preventing money laundering. However, the distinction lies in the specific type of customers that a company interacts with.
KYC rules and processes are suitable for individuals who are customers or consumers. KYB rules have been created specifically for situations where the customer is a business or corporate entity. Any B2B service provider will need to adhere to these Know Your Business regulations.
Conclusion
Robust KYB practices are a cornerstone of building trust and legitimacy in the crypto space. By implementing effective KYC and KYB checks, crypto businesses can create a safer and more transparent environment for all participants.