What is KYB? (Know Your Business)
KYB is the process of verifying that the businesses you work with are legitimate, transparent, and compliant. It's the corporate cousin of KYC (Know Your Customer), but with far greater complexity due to layered entity structures, UBOs (Ultimate Beneficial Owners), and cross-border regulations. The goal: prevent fraud, money laundering, and reputational risk by knowing exactly who's behind the business relationships you form.
Recent research from Juniper Research highlights the urgency of proper business verification, projecting that merchant losses from online payment fraud will exceed $362 billion globally between 2023 and 2028. This staggering figure underscores why businesses need robust verification processes before establishing partnerships.
Regulators worldwide - driven by events like the Panama Papers and new regulatory frameworks - now require deep due diligence on companies, not just individuals.
Why is KYB required?
KYB is required for several reasons aiming at ensuring transparency, mitigating risks, and maintaining the integrity of financial transactions. It plays a crucial role in identifying if a company we have a business relationship with is involved in potentially illicit actions related to money laundering, terrorist financing, and other financial crimes. These crimes relate not only to illegal transactions but also to business and individual identity fraud which is becoming more and more popular.
KYB acts as a deterrent against financial crimes by requiring businesses to disclose their ownership structure and provide evidence of legitimacy. Engaging with businesses without proper knowledge of their background can pose significant reputational risks and penalties for non-compliance.
The KYB Process: Step-by-Step
1. Data Collection
The first step of KYB process involves gathering essential information about the business entity, including legal name, registration number, operational address, directors, and UBOs. Modern KYB platforms can source this data from official registries, third-party databases, and direct API integrations, significantly reducing manual entry and data silos.
2. Document Verification
Next, you'll need to collect and verify supporting documentation, such as certificates of incorporation, business licenses, articles of association, and proof of address. Advanced KYB solutions utilize OCR-based document verification technology and direct registry cross-checks to automate this process, enhancing accuracy and efficiency.
3. UBO & Control Checks
One of the most critical aspects of KYB process is identifying individuals who ultimately control or benefit from the entity (typically 25%+ ownership or significant influence). This often requires analyzing complex ownership structures that may span multiple jurisdictions. Leading KYB providers leverage multi-source enrichment to expose hidden ownership layers across borders.
4. AML, Sanctions, PEP & Adverse Media Screening
Once the business and its beneficial owners are identified, they must be screened against global sanctions lists, politically exposed persons (PEP) databases, and adverse media sources. Effective KYB solutions cascade these checks in real-time, immediately flagging high-risk entities for further review.
5. Risk Assessment & Decision
Based on the collected data and verification results, a risk score is assigned to the business relationship. This assessment considers factors like industry, geography, ownership complexity, and regulatory history. Modern KYB platforms offer no-code decision engines that allow compliance teams to configure custom rules, enabling risk-based approaches to onboarding.
6. Ongoing Monitoring
KYB isn't a one-time exercise. Regulatory best practice requires perpetual (pKYC/pKYB) monitoring for changes in ownership, control, or risk profile. Automated monitoring tools can alert compliance teams to relevant changes, ensuring the business relationship remains compliant throughout its lifecycle.
Red Flags in Business Verification
When conducting KYB, certain warning signs may indicate higher risk or potential fraud. Watch for:
- Mismatches between a company's office address and shipping address
- Lack of significant credit history or business records
- Errors, inconsistencies, or edits in official documents
- Frequent changes in company ownership or management
- Reluctance to provide complete information about beneficial owners
- Businesses registered in high-risk jurisdictions
- Unnecessarily complex ownership structures without clear business justification
Identifying these red flags early can help prevent partnership with fraudulent entities and protect your business from financial and reputational damage.
Implementing a Risk-Based Approach to KYB
Not all business relationships carry the same level of risk. A risk-based approach to KYB allows organizations to allocate resources efficiently while maintaining compliance. Here's how to implement it:
Risk Categorization
Businesses should be categorized based on risk factors such as:
- Industry (higher risk: gambling, cryptocurrency, high-value goods)
- Geographic location (higher risk: countries with weak AML controls)
- Business structure complexity
- Transaction patterns and volumes
- Politically exposed connections
Tiered Due Diligence
- Standard Due Diligence: For low-risk entities, covering basic verification steps
- Enhanced Due Diligence (EDD): For medium to high-risk entities, requiring additional scrutiny, more extensive documentation, and deeper investigation
Review Frequency
- Low-risk businesses: Every 2-3 years
- Medium-risk businesses: Annually
- High-risk businesses: Quarterly or bi-annually
- Significant changes (ownership, location, activity): Immediate review
This approach ensures that your compliance resources are focused where they're most needed while maintaining appropriate oversight across your business relationships.
KYB Record-Keeping Best Practices
Proper record-keeping is essential for regulatory compliance and audit readiness. Most regulatory frameworks require businesses to retain KYB documentation for at least five years after the end of a business relationship or transaction. Your record-keeping system should include:
- All customer information and verification documents
- Transaction records
- Risk assessment results and decisions
- Screening results and resolution of potential matches
- Internal and external suspicious activity reports
- Compliance monitoring documentation
- Training records and effectiveness evaluations
Consider implementing a secure, centralized digital record-keeping system that enables quick retrieval of information when needed for regulatory inquiries or audits.
The Business Impact of Effective KYB
Implementing a robust KYB process delivers significant benefits beyond mere compliance. According to a 2023 Thomson Reuters survey, financial institutions with automated KYB processes reported 65% faster onboarding times and 40% fewer false positives compared to those using manual processes.
Companies like Keyrock, a digital asset liquidity provider, have reduced onboarding time by 40% after implementing automated KYB solutions. Similarly, embedded finance platforms have achieved compliance excellence while simultaneously lowering AML data costs and improving user experience.
As Charlotte Gounot, Head of Compliance at Defacto, notes: "Finding an API-first and tech-based partner that could meet all KYB and AML-CFT screening needs allows us to build the right balance between compliance requirements, best UX, and product quality."
Key Regulatory Frameworks for KYB
KYB requirements are shaped by various global and regional regulators. For example, in the US, FinCEN enforces the Customer Due Diligence Rule, while the Financial Conduct Authority (FCA) sets standards in the UK. The European Union's AMLD6 and MiCA provide frameworks for member states, and global organizations like the Financial Action Task Force (FATF) issue recommendations that influence national laws worldwide.
Recent regulatory updates include:
- The Corporate Transparency Act in the US required reporting companies existing before 2024 to report their beneficial ownership information to FinCEN by January 1, 2025
- FATF updated its beneficial ownership guidelines in March 2023, emphasizing the need for countries to implement a "multi-faceted strategy"
- In February 2025, FATF updated its standards to better support financial inclusion while maintaining thorough Customer Due Diligence requirements
These evolving regulations highlight the growing importance of comprehensive and up-to-date KYB processes.
KYB Requirements by Industry
While KYB is mandatory for AML-regulated entities, requirements can vary by industry. Here's a breakdown of key sectors and their specific considerations:
Financial Services
- Banks, payment processors, and neobanks face the strictest KYB requirements
- Must conduct enhanced due diligence for high-risk customers
- Required to implement continuous monitoring systems
Cryptocurrency
- Growing regulatory focus with MiCA in Europe and evolving frameworks globally
- Must verify business customers and their UBOs before allowing transactions
- Special attention to Travel Rule compliance for business transfers
Real Estate
- Required to verify business buyers and sellers to prevent money laundering
- Special attention to complex ownership structures and offshore entities
- Focus on source of funds verification for large transactions
Gambling and Gaming
- Must verify business partners and high-value players
- Particular attention to beneficial ownership of gaming entities
- Ongoing transaction monitoring requirements
Professional Services
- Law firms, accountants, and consultants must verify business clients
- Special focus on politically exposed connections
- Required to report suspicious business activities
E-commerce and Marketplaces
- Growing adoption of KYB to prevent seller fraud and protect consumers
- Focus on verifying business identity and legitimacy
- Increasing regulatory attention to platform responsibility
Understanding your industry's specific requirements is essential for building a compliant and effective KYB program.
How AI is Transforming KYB
Artificial intelligence and machine learning are revolutionizing business verification processes in several key ways:
Document Analysis
AI-powered OCR (Optical Character Recognition) can extract information from business documents in multiple languages with high accuracy, reducing manual data entry and human error.
Pattern Recognition
Machine learning algorithms can detect unusual patterns or inconsistencies in business information that might indicate fraud, flagging potential issues that human reviewers might miss.
Risk Scoring
AI can analyze hundreds of risk factors simultaneously to generate more accurate risk scores, enabling truly risk-based approaches to verification.
Ongoing Monitoring
AI systems can continuously monitor for changes in business status, ownership, and risk factors, alerting compliance teams only when meaningful changes occur.
Reduced False Positives
Advanced algorithms can better distinguish between genuine matches and false positives in sanctions and PEP screening, reducing compliance workload.
Modern KYB platforms like Dotfile leverage these AI capabilities to make verification faster, more accurate, and less resource-intensive.
Why Does KYB Matter?
- Compliance: Avoid steep fines and legal risk by meeting regulatory standards across jurisdictions.
- Fraud Prevention: Spot shell companies, synthetic IDs, and hidden UBOs before they become a problem.
- Faster Onboarding: Automation shrinks onboarding from weeks to minutes, boosting conversion rates.
- Reputational Protection: Prevent bad actors from damaging your brand or causing regulatory scrutiny.
Practical Challenges in KYB Implementation
Document Processing Complexities
Manual document processing remains one of the biggest challenges in KYB, especially when dealing with unstructured documents and non-standard formats. Modern KYB solutions address this through advanced OCR technology, hybrid automation/human review workflows, and no-code orchestration layers that significantly reduce operational burden and human error.
Data Integration Hurdles
Many organizations struggle with integrating multiple data providers and verification services. Leading KYB platforms solve this by providing unified compliance hubs with API-first architectures that connect to hundreds of data sources worldwide, eliminating "vendor spaghetti" and creating a seamless analyst experience.
Cross-Border Verification
Verifying businesses across different jurisdictions presents unique challenges due to varying regulatory requirements and data availability. KYB providers with global coverage can access primary-source registry data in over 200 jurisdictions, helping compliance teams untangle even the most complex corporate structures.
Industry Terms to Know
- PEP (Politically Exposed Person): High-risk individuals due to political connections.
- Adverse Media: Negative news or reputational signals.
- CDD/EDD: Customer/Enhanced Due Diligence, risk-tiered verification.
- No-Code Rules Engine: Lets compliance teams adapt onboarding logic without engineering.
- Perpetual KYB (pKYB): Ongoing, event-driven entity monitoring, not just point-in-time checks.
- UBO (Ultimate Beneficial Owner): Individual who ultimately owns or controls a business, typically holding more than 25% of shares or voting rights.
- ACDR (Automated Company Document Reading): AI-powered technology that extracts information from corporate documents in multiple languages.
Best Practices for Modern KYB
- Adopt a risk-based approach: Not all entities present the same level of risk. Tailor your verification processes based on risk profiles to optimize resources.
- Automate what you can: Use technology to handle routine verification tasks while keeping human oversight for complex cases.
- Implement continuous monitoring: Regulatory requirements and business relationships evolve. Establish systems that alert you to relevant changes.
- Choose flexible technology: Select KYB solutions that support API-first integration, customizable rules, and global data coverage.
- Balance security with user experience: Design your KYB process to be thorough yet streamlined to minimize friction during onboarding.
- Consider industry-specific requirements: Some sectors (like financial services or healthcare) may have additional regulatory obligations beyond standard KYB procedures.
- Establish clear escalation procedures: Define processes for handling high-risk entities or unusual verification scenarios that require additional review.
How Dotfile can help you with KYB?
Dotfile helps you verify business counterparties anywhere in the world in seconds. Through our business verification platform businesses can automate data collection, document verification, sanctions screening, PEP screening, and risk-scoring processes. Dotfile fosters the building of a comprehensive verification process while reaching global compliance, all with a single solution. With the right partner, automating KYB is just a breeze. Book a demo to see how we can help you.
Conclusion
Implementing effective KYB processes is no longer optional. As financial crimes grow more sophisticated and regulators increase scrutiny, businesses need robust, automated solutions that balance compliance requirements with operational efficiency.
Modern KYB platforms have helped organizations reduce onboarding time by up to 40% while maintaining rigorous compliance standards. By automating document verification, risk assessment, and ongoing monitoring, what was once a complex, manual process can be transformed into a streamlined, efficient operation that enhances both compliance and customer experience.
