Passing KYB, explained by Head of Legal, Aleksandra Ivanova.

The Know Your Business (KYB) procedure is a set of measures to obtain comprehensive information about business partners or clients. KYB is mandatory for financial and crypto platforms and is carried out under their internal policies and legal requirements.

Passing a KYB check is a lengthy and often energy-consuming process for both checking authorities and businesses looking to be onboarded. Still, if either side comes prepared and eager to cooperate, there is a high chance of speeding up the process.

Companies must analyze and verify their global customers’ business and financial information to protect themselves from document fraud and guarantee their users’ safety. Additionally, to comply with applicable anti-money laundering requirements, proper KYB procedures are a must.

Both KYC and KYB procedures are aimed at preventing possible money laundering crimes and risks of terrorist activities. They are mainly applied before a company enters into legal relationships with business clients to either provide a service or start a partnership.

KYB is not too different from the well-known KYC (Know Your Client) procedure. The only difference is the verification subject. The KYB process requires collecting information about a business, while KYC targets individuals.

All You Need to Know and Prepare for Passing KYB

The general objective of any KYB procedure is to identify and verify your potential client or partner. The identification procedure involves obtaining information about the company and allows to establish the type of activity, persons authorized to make decisions, as well as shareholders and beneficiaries. Verification, in turn, is the process of verifying information provided during identification.

Documents

The standard set of documents includes:

The company’s official extract from the business register
Information about the company’s ultimate beneficial owner (UBO)
Information about shareholders owning over 25%of the company’s shares
Information about the company’s director

Depending on the specifics of the business, the list of documents can vary. Companies licensed to work with crypto assets can also request confirmation of the welfare of beneficial owners, proof of the source of income, and other documents to identify activities and their legal grounds, as well as the identity of business owners and other executives.

Additional information, such as average monthly and yearly turnover, a detailed description of the activities, and other materials essential for establishing a legal relationship, is collected using questionnaires.

Licensed companies (payment or crypto service providers) impose more stringent requirements on customers during KYB and KYC procedures. For such companies, the standards for carrying out verification procedures are set by the regulator while the state supervisory authority controls the overall compliance.

The Process

To conduct a proper KYB procedure, an authorized employee of the company (AML or compliance officer), in addition to document examination, looks into the company using public information sources, evaluates publicly available information, reviews, and reputation in the market.

The company’s website is also the subject of research of the AML officers. In particular, the policies published on the site and the procedure for service provision are subject to study.

One of the most critical components of KYB is to check whether beneficiaries, shareholders, and directors belong to any sanctions or PEP (politically exposed persons) lists.

Suppose during KYB the officer establishes that a potential client does not pass any of the checks or passes them with violations. In that case, this may serve as the basis for conducting the Enhanced Due Diligence (EDD) procedure.

Enhanced Due Diligence

There are several main reasons why your business might have to undergo EDD.

When identifying the сlient or verifying the information they provided, an officer starts doubting data’s credibility, the authenticity of the documents, or the identification of the beneficial owner
A client is on the local or foreign PEP list
Either a client or the payee’s payment service provider is in a high-risk third country
Either a client or the jurisdiction of the payee’s payment service provider is from a country or territory that has not established effective AML/CTF, complying with the FATF recommendations. Alternatively, either of them is from an area that is considered a low tax.

Is It Possible Not to Pass?

Based on the Enhanced Due Diligence results, the authorized employee either decides to continue cooperation with the company or refuse.

Refusal can take place due to the client’s high level of risk, for example, if the specifics of the client’s activities do not meet the requirements of the company’s internal policies. A client’s unwillingness to provide additional information is another reason for rejection.

In addition, if the company’s owner, shareholders, or directors are found in the sanctions lists or it is located in one of the FATF blacklisted countries, it won’t be able to pass the KYB check successfully.

How to Simplify KYB

The simpler the company structure, the easier the KYB process. Suppose the company does have an uncomplicated layout. In that case, passing KYB won’t take much time since the number of audit subjects will be minimal: document and other data verification of the company, shareholder, beneficiary, and director who is, in fact, one person.

At the same time, verification of a company with a complex multi-level ownership structure always takes longer.

If you want to pass the KYB process faster, provide all necessary documents and transparent information about the scope of your company’s activities in time and actively cooperate with the inspecting authorities.

The Bottom Line

Passing the KYB procedure is not necessarily the most exciting part of doing business, but it can be simplified if you do your homework properly. Following instructions, cooperating, and making sure all your documents are in order will help with speeding up the process. Unless your business is located in a high-risk location or any of the founders have been spotted on the sanctions lists, you don’t have to worry about a possible refusal.