Know Your Business (KYB) and Know Your Customer (KYC) are both pillars of anti-money laundering compliance, but they serve different purposes and involve different verification processes. Understanding when and how to apply each is essential for building an effective compliance program.
The Core Distinction
KYC verifies the identity of individual persons.
KYB verifies the identity, legitimacy, and ownership of business entities—including the individuals who own and control them.
When onboarding a business customer, you're typically doing both: KYB on the entity itself, plus KYC on its beneficial owners and authorized representatives.
Side-by-Side Comparison
Verification subject
- KYC: Individual person
- KYB: Business entity
Primary documents
- KYC: Government-issued ID, proof of address
- KYB: Certificate of incorporation, business registry filings
Identity confirmation
- KYC: Name, DOB, address, ID number
- KYB: Legal name, registration number, jurisdiction, status
Ownership analysis
- KYC: N/A
- KYB: Required—identify all UBOs (typically 25%+ ownership)
Complexity
- KYC: Generally straightforward
- KYB: Can involve multi-layered corporate structures
Data sources
- KYC: Government ID databases, credit bureaus
- KYB: Business registries, corporate filings, UBO registries
Screening
- KYC: Sanctions, PEP, adverse media
- KYB: Same, plus entity-level screening
Typical turnaround
- KYC: Minutes to hours
- KYB: Hours to days (complex structures take longer)
When KYC Applies
KYC is required when establishing a relationship with an individual customer. Common scenarios:
- Opening a personal bank account
- Individual investment accounts
- Consumer lending and credit cards
- Insurance policies for individuals
- Any regulated service provided to a natural person
Standard KYC Elements
- Identity verification: Confirm the person is who they claim to be using government ID
- Address verification: Validate residential address
- Screening: Check sanctions lists, PEP databases, adverse media
- Risk assessment: Evaluate customer risk based on various factors
- Ongoing monitoring: Watch for suspicious activity or changes in risk profile
When KYB Applies
KYB is required when onboarding a business entity as a customer or partner. Common scenarios:
- Opening a business bank account
- B2B payment processing relationships
- Commercial lending
- Business insurance policies
- Vendor and supplier onboarding
- Partnership agreements
Standard KYB Elements
- Entity verification: Confirm the business exists and is in good standing via official registries
- Business information: Validate name, address, registration details, industry
- Beneficial ownership: Identify all individuals with 25%+ ownership or significant control
- KYC on owners: Verify identity of each beneficial owner (here KYB includes KYC)
- Screening: Check entity and owners against sanctions, PEP, and adverse media
- Risk assessment: Evaluate based on industry, jurisdiction, ownership complexity, screening hits
- Ongoing monitoring: Monitor for changes in business status, ownership, or adverse information
The Overlap: KYC Within KYB
A key point often missed: KYB incorporates KYC. When you identify a company's beneficial owners, you must then verify their individual identities—that's KYC.
Business Entity (KYB)
├── Entity verification
├── Business information
├── Beneficial Owner A (KYC)
│ ├── Identity verification
│ ├── Screening
│ └── Risk assessment
├── Beneficial Owner B (KYC)
│ ├── Identity verification
│ ├── Screening
│ └── Risk assessment
└── Entity-level screening & monitoring
This is why KYB is inherently more complex than KYC alone—you're verifying both the corporate entity and multiple individuals.
Why KYB Is More Complex
Several factors make business verification more challenging than individual verification:
1. Ownership Structures
Individuals have one identity. Businesses can have intricate ownership chains:
- Company A is owned by Company B, which is owned by a trust, which benefits Individual X
- Multiple shareholders across different jurisdictions
- Nominee directors and shareholders obscuring true ownership
- Constantly changing cap tables (especially startups)
2. Data Fragmentation
Individual identity data is relatively standardized (government IDs follow common formats). Business data is scattered across:
- 50 US state registries (each with different data standards)
- Thousands of international registries
- Some jurisdictions with no public business registry at all
3. No Universal Identifier
Individuals have SSNs, passport numbers, and national IDs. Businesses lack a global unique identifier—a company's registration number only has meaning within its jurisdiction.
4. Ongoing Changes
Businesses change more frequently than individuals:
- Ownership transfers and funding rounds
- Mergers and acquisitions
- Name changes and rebranding
- Dissolution and reinstatement
- Director and officer changes
Regulatory Requirements
Both KYC and KYB stem from the same regulatory frameworks, but with different emphases:
KYC Regulations
KYB-Specific Regulations
- Corporate Transparency Act (US) - beneficial ownership reporting
- EU 4th/5th/6th AMLDs - UBO registry requirements
- FATF Recommendations 24 & 25 - beneficial ownership transparency
- FinCEN CDD Rule - beneficial owner identification for account opening
Risk-Based Approach
Both KYC and KYB should follow a risk-based approach:
Lower Risk → Simplified Due Diligence
- Established, publicly traded companies (ownership is transparent)
- Regulated financial institutions (already subject to oversight)
- Government entities
- Long-standing customers with clean history
Higher Risk → Enhanced Due Diligence
- Complex ownership structures
- High-risk jurisdictions
- Cash-intensive businesses
- PEP involvement
- Adverse media or screening hits
- Unusual business models
Technology Considerations
The tools for KYC and KYB differ significantly:
KYC Technology
- Document verification (ID scanning, authenticity checks)
- Biometric verification (facial recognition, liveness detection)
- Database checks (credit bureaus, government databases)
- Relatively mature market with standardized solutions
KYB Technology
- Business registry APIs and integrations
- Corporate data aggregators
- UBO registry access
- Ownership structure visualization
- Less standardized, more fragmented market
Key Takeaways
- KYC verifies individuals; KYB verifies businesses (including their individual owners)
- KYB incorporates KYC when verifying beneficial owners
- KYB is inherently more complex due to ownership structures, data fragmentation, and ongoing changes
- Both require a risk-based approach with enhanced scrutiny for higher-risk relationships
- Regulatory requirements continue expanding for both, with particular focus on beneficial ownership transparency
