What is KYB?
KYB, or Know Your Business, is an activity designed to truly understand the businesses you are engaging or engaged with to ensure safe, compliant third-party relationships.
A KYB process, often part of an anti-financial crime compliance program, enables you to build a picture of risk associated with a business entity to make decisions about onboarding, procurement, partnerships, and more.
While similar to a Know Your Customer (KYC) process, KYB focuses specifically on business entities (e.g., companies) rather than individuals and was developed to combat money laundering, terrorist financing, and other risks that may exist in a business relationship. Check out this article to find out more about the differences between KYB and KYC.
To verify the owners of a business entity and establish legitimacy, KYB involves checking key data, including registration documents, addresses, and the identities of directors and owners to determine Ultimate Beneficial Ownership (UBO).
Understanding corporate structures and UBOs is vital for compliance and risk management, ensuring you're not inadvertently working with sanctioned entities or fraudulent operations.
Regulations such as the USA Patriot Act, the EU's Anti-Money Laundering Directives, and FinCEN's Customer Due Diligence Requirements mandate KYB checks to ensure compliance and mitigate financial crime risks.
Regulated firms are required to perform customer and supplier due diligence, monitor ongoing risks, identify and report suspicious activity, and screen against sanctions lists. It’s good practice to screen for politically exposed persons (PEPs) in an ownership structure as they may pose a higher risk as they can be targets for bribery and corruption. Investigating negative news or adverse media to build a comprehensive picture of the risk associated with a business entity can form part of enhanced due diligence.
Corporations and other businesses in less heavily regulated industries may conduct KYB as part of supplier due diligence or third-party risk management. This helps mitigate risks within a partner or supplier network that could potentially damage finances and reputations.
Screening and data checks are hugely important to a KYB process as they help verify the credentials of an entity, establish corporate transparency, and a picture of overall risk. A list of KYB checks a business might perform during onboarding or risk monitoring include:
These KYB checks help establish the credibility of a customer or business partner, mitigate risks, and ensure compliance with applicable regulations.
Entity verification is a key part of KYB and crucial to answering the question, “Who am I doing business with?” It’s the starting point for understanding risk across your counterparty network. Among current economic and geopolitical uncertainties, stringent regulation, and data management challenges, the need for robust entity verification has never been more important.
Moody's recent study into Entity Verification highlighted the role it plays in effective risk management, with 90% of respondents viewing entity verification as essential or important. It provides the bedrock for further due diligence and enhanced due diligence.
With business interconnectivity, supply chains that can run into many tiers, and customers who are truly global, knowing who you are doing business is critical, but also complicated. Companies particularly face challenges around new and changing regulation, as well as access to unified data as it can become disparate and siloed in many organizations.
Despite these challenges, starting with entity verification data and moving through a robust KYB process can end in a "golden record", which provides a single view of a data entity. This can be used for risk and compliance, but it can also be leveraged across your organization for competitive advantage.
Data maturity and data governance are often challenges in the KYB process. Moody's study reveals that a majority of organizations struggle with internal data quality issues, data fragmentation, and the high costs associated with data management.
Currently, 48% of our survey respondents have a centralized approach to entity verification, for example. 19% operate on a department-by-department basis, and more than 1 in 4 of the respondents in financial services companies surveyed see their data as fragmented, with 35% describing it as “inconsistent”.
This indicates significant potential for simplification and efficiency improvements when it comes to KYB due diligence.
As businesses navigate the complex world of criminal activity, third-party risk, and compliance, robust KYB processes have become increasingly important. KYB verification ensures businesses are not unknowingly engaging with sanctioned entities, criminal enterprises, or other high-risk entities who could be involved in money laundering or other types of financial crime.
Moody's helps customers carry out automated KYB processes effectively and efficiently to avoid non-compliance, remove time-consuming tasks related to entity verification, and support corporate onboarding and risk monitoring. Effective KYB enables organizations to protect themselves against reputational damage, comply with regulatory requirements, and seize opportunities for growth. By overcoming data challenges, implementing robust data governance practices, and making use of technologies, you can enhance KYB processes and effectively manage risks across a counterparty network.
Moody's provides a comprehensive suite of KYB solutions, including automated entity verification tools, business ownership identification and verification services, and ongoing monitoring capabilities to help detect suspicious activity.
Automation of KYB processes means you can quickly and accurately verify the identity and business information for a counterparty, then make decisions about what happens next, as well as leveraging that data across the organization.
Moody's works with customers to define tailored and intuitive KYB processes, integrating data checks into automated workflows - seamlessly incorporating KYB verification to understand the risks associated with customers, partners, and suppliers.
In addition to verifying identity and business information, Moody's KYB solutions help mitigate financial crime risk. Monitoring for changes in risk profiles enables you to identify suspicious activity and high-risk factors connected with an entity.
For more information or to discuss automating your KYB process, please get in touch with the Moody's team - we would love to hear from you.