What Are the KYB Requirements? (Know Your Business Checks Explained)

Before entering into a business relationship, financial institutions and other regulated organisations must understand exactly who they are dealing with.

Know Your Business (KYB) is a core compliance requirement that helps organisations verify the identity, legitimacy, ownership, and risk profile of corporate customers. As anti-money laundering (AML) regulations continue to evolve, businesses are under increasing pressure to demonstrate effective due diligence and transparency throughout the customer lifecycle.

This article explains what KYB requirements are, why they matter, the key checks organisations must perform, and how regulatory expectations are changing across major jurisdictions. It also explores the role of KYB in merchant onboarding, payment services, and ongoing risk management.

KYB Requirements at a Glance

KYB requirements usually include verifying that a business exists, confirming its legal status, identifying directors and ultimate beneficial owners, screening relevant parties against sanctions and watchlists, assessing the customer’s risk profile, and monitoring for changes over time. For payment providers and other regulated firms, KYB is a core part of AML compliance and merchant risk management.

What is KYB?

Know Your Business (KYB) is the process of verifying that a company is genuine before entering into a commercial relationship with it.

Practically, this means reviewing a business client, confirming the company exists, understanding who owns and controls it, and assessing whether it presents any financial crime or compliance risks.

Similar to KYC (Know Your Customer), which is about proving an individual is who they say they are, KYB does the same thing for organisations. Banks, payment service providers, fintechs, and other firms use KYB checks before onboarding merchants or enabling financial transactions.

The requirement stems from anti-money laundering (AML) regulations, which are designed to stop criminals from using seemingly legitimate businesses to move illicit funds and finance illegal activities, and help prevent financial crime.

KYB has become increasingly important as corporate structures have grown more complex.

A company might appear straightforward on paper, but ownership can sometimes stretch across multiple jurisdictions. The purpose of KYB is to make those structures transparent by assessing the business structure and verifying both the business and its ultimate beneficial owners.

Why Does KYB Matter?

Verifying a business can seem straightforward. But, in reality, it is one of the most important safeguards against financial crime.

Criminal networks frequently use shell companies and opaque ownership structures to disguise the movement of money. Without proper checks organisations can risk unknowingly facilitating fraud, sanctions breaches, money laundering, or terrorist financing.

According to the UK's National Crime Agency, there is a realistic possibility that money laundering impacting the UK annually runs into hundreds of billions of pounds, with around £100 billion of criminal money thought to be laundered through or within the UK each year.

Businesses that fail to identify high-risk customers can face operational disruption and loss of customer trust.

For payment providers in particular, a single problematic merchant can expose an entire portfolio to increased scrutiny from regulators and banking partners. Failure to conduct proper KYB due diligence can also lead to substantial fines and, in serious cases, criminal liability for senior management.

Effective KYB therefore supports compliance and risk management, while helping organisations build a clearer picture of who they are actually doing business with and mitigate risks.

What Are the Core KYB Checks?

Although the specifics of KYB compliance requirements vary by jurisdiction and applicable regulations, most KYB programmes follow the same broad principles.

The core KYB checks and overall verification process are designed to answer some important questions:

The sections below explore each requirement in more detail.

Entity Verification

The starting point is confirming that the business is a legitimate legal entity. This involves verifying the company through official registration records, including the legal name, registration number, registered address, date of incorporation, and legal structure, while confirming the company's legal status.

Regulated entities often confirm these details using business registration documents such as a Certificate of Incorporation, Articles of Association, and a Business Registration Extract.

In the UK, for example, organisations often rely on Companies House data to confirm that a company is registered and active and that key details match official records.

For a payment provider onboarding a new merchant, this step helps distinguish a legitimate retailer from a company that may have been established solely to process suspicious transactions.

Ownership & Control Structure

One of the most important parts of KYB is understanding who benefits from the business.

A company may be owned directly by one person, but it could also sit within a much larger network of shareholders, holding companies and subsidiaries.

Regulators place significant emphasis on identifying and verifying ultimate beneficial owners. In many jurisdictions, a UBO is defined as someone who owns or controls 25% of a business, although thresholds and tests can vary.

The importance of beneficial ownership transparency has become a major focus globally. Research from the Financial Action Task Force (FATF) has repeatedly highlighted hidden ownership structures as a key enabler of money laundering and sanctions evasion.

For compliance teams, the challenge is often less about identifying the first layer of ownership and more about tracing control through multiple layers until the individuals behind the business can be verified, especially where complex ownership structures are involved, because following those layers helps assess risk.

Identifying UBOs is a key step in the business verification process because it can reveal links to PEPs or adverse media.

Sanctions, PEP & Watchlist Screening

Businesses, directors, ultimate beneficial owners and other relevant connected parties must also be screened against sanctions lists, politically exposed persons (PEP) databases, and adverse media sources as part of evaluating the customer's risk profile.

This is more of a background check rather than an identity check.

A company may be legally registered and operational, but that does not automatically mean it represents an acceptable level of risk.

Screening helps identify links to sanctioned individuals, corruption investigations or other activities that signal potential risks and could expose an organisation to regulatory consequences.

For cross-border payments businesses, this is particularly important given the speed at which sanctions regimes can change.

Business Activity & Risk Assessment

Not every business presents the same level of risk. A local accounting firm operating solely within the UK will generally require less scrutiny than a newly established merchant conducting high-value transactions across multiple high-risk jurisdictions.

Operational legitimacy also means understanding the company’s core activities, physical location and financial standing.

For that reason, KYB follows a risk-based approach.

Organisations assess risk by looking at the company’s activities and transaction patterns. They also look at factors such as industry sector, geographical exposure, expected transaction volumes, ownership complexity, financial health, and financial history to shape evolving risk profiles.

The goal is to understand risk well enough to make informed onboarding and monitoring decisions.

Ongoing Monitoring

A common misconception is that the KYB process ends once a customer has been approved.

In practice, that is only the beginning.

Businesses change over time. Directors resign, ownership structures evolve, and sanctions lists are updated. A company that presented little risk when it was onboarded may look very different two years later.

This is why ongoing monitoring forms a core part of modern KYB programmes. Rather than relying on periodic reviews alone, many organisations now use a KYB solution to track changes and refresh risk profiles over time with alerts triggered when significant updates occur.

According to LexisNexis Risk Solutions, financial institutions spend billions globally each year on compliance activities, with a growing focus on continuous monitoring and risk management processes.

KYB vs KYC: What’s the Difference?

KYB and KYC are closely related, but they focus on different types of customers.

Know Your Customer (KYC) applies to individuals. It involves verifying a person's identity, address, and, in some cases, source of funds before providing financial services.

Know Your Business (KYB), on the other hand, applies to organisations. Instead of confirming the identity of a single person, KYB seeks to understand the legitimacy of an entire business.

In practice, the two processes often overlap.

A payment provider onboarding a new merchant may need to verify both the company itself and the directors or Ultimate Beneficial Owners (UBOs) behind it.

Both form part of a wider anti-money laundering (AML) framework and are designed to help regulated firms make informed decisions about who they do business with.

The Regulatory Landscape

Although the principles behind KYB are broadly consistent around the world, the specific requirements vary by jurisdiction according to relevant regulations.

Most national frameworks are built around international AML standards and then adapted to local legal and regulatory environments.

International: FATF Recommendations

The global benchmark for AML and KYB compliance is set by the Financial Action Task Force (FATF), an intergovernmental body established to combat money laundering, terrorist financing and other threats to the financial system.

FATF's recommendations require countries to implement customer due diligence measures and adopt a risk-based approach to compliance. While the recommendations are not legally binding, they heavily influence legislation and supervisory expectations across jurisdictions globally.

The focus on beneficial ownership has become increasingly important. FATF has repeatedly identified opaque ownership structures and shell companies as common tools used to conceal illicit activity, making transparency a central pillar of modern KYB requirements.

European Union: AMLD & the New AML Package

Within the European Union, KYB obligations are primarily driven by successive Anti-Money Laundering Directives (AMLDs), which have progressively strengthened customer due diligence and beneficial ownership requirements.

The latest reforms go a step further. The EU's new AML Package introduces a central Anti-Money Laundering Authority (AMLA), a directly applicable AML Regulation and a new AML Directive, intending to create greater consistency across member states. Key parts of the new framework are being phased in, with the AML Regulation due to apply from July 2027.

A key theme throughout the legislation is increased transparency around corporate ownership and stronger monitoring of high-risk business relationships.

United Kingdom

In the UK, KYB requirements largely stem from the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017, alongside sector guidance and supervisory expectations from bodies such as the Financial Conduct Authority (FCA).

Businesses subject to AML rules, including regulated entities, are expected to verify corporate customers, identify people with significant control and apply enhanced scrutiny where higher risks are identified.

The UK has also placed growing emphasis on corporate transparency. Recent reforms to Companies House have introduced stronger identity verification measures and expanded powers to improve the quality of information held on the register, including new identity verification requirements for directors and people with significant control.

United States

In the United States, KYB obligations are shaped by the Bank Secrecy Act, the Customer Due Diligence Rule and the Corporate Transparency Act (CTA).

The CTA represents one of the most significant developments in recent years. The legislation was originally designed to require many companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), making it more difficult for individuals to hide behind anonymous corporate structures.

However, FinCEN’s position has since changed, and US companies and US persons are no longer required to report beneficial ownership information under the CTA, while certain foreign reporting companies may still have obligations.

The move reflects a broader international trend towards greater ownership transparency and stricter verification requirements for business entities.

KYB in the Payments Industry

For payment providers, KYB is not simply a compliance exercise. It is central to compliance and risk management and to protecting the integrity of the payments ecosystem.

Every merchant onboarded creates potential exposure, so each decision depends on a strong verification process and the need to mitigate risks. If a provider fails to identify a fraudulent or high-risk business, the consequences can extend far beyond regulatory scrutiny. Chargebacks, fraud losses, sanctions breaches, and reputational damage can all follow.

The scale of the challenge continues to grow. According to Juniper Research, global merchant losses from online payment fraud are expected to exceed $362 billion between 2023 and 2028, highlighting the importance of robust verification processes at the onboarding stage.

Merchant Onboarding & KYB

Reviewing a business customer during onboarding is often where KYB has the greatest operational impact.

Before a merchant can begin accepting payments, providers typically carry out company verification and business checks to confirm that the business is legitimate and assess the level of risk it presents.

A local retailer, for example, may require relatively straightforward checks, whereas a cross-border eCommerce business operating in multiple jurisdictions is likely to require deeper scrutiny.

The challenge is balancing compliance with customer experience. Lengthy manual reviews can create friction and delay onboarding, while insufficient checks can expose providers to significant regulatory and financial risks.

KYB for PSPs & Payment Facilitators

Payment service providers (PSPs) and payment facilitators face particular pressure to streamline onboarding without compromising compliance standards.

This is one reason why automation has become increasingly important. According to a 2024 survey by Fenergo, onboarding and KYC processes remain one of the largest operational burdens for regulated firms, with many organisations continuing to cite manual data collection and verification as major sources of delay.

Modern KYB solutions allow providers to verify business information against official registries and monitor changes in near real time.

This helps reduce manual workloads while serving as a KYB solution that supports faster KYB verification across multiple markets, so firms can work with business partners more confidently.

Common Challenges with KYB

One of the biggest challenges is identifying beneficial ownership through complex corporate structures. A business may be owned by another company, which is itself owned by a trust or an overseas holding entity. Tracing ownership through multiple layers can be time-consuming and resource-intensive.

Cross-border verification presents another difficulty. Different countries maintain different standards for company registration data, and the availability of beneficial ownership information can vary considerably.

Many organisations also struggle with ongoing monitoring. Businesses evolve, and keeping customer information accurate requires continuous oversight rather than one-off verification checks.

What Documents Are Typically Required for KYB?

The exact documentation requested will depend on the business’s risk profile, legal structure, jurisdiction, and industry, and these documents help confirm operational legitimacy.

However, organisations commonly ask for:

Additional evidence may be requested where enhanced due diligence is required.

FAQs

Who Needs to Comply with KYB Requirements?

KYB requirements generally apply to regulated entities in sectors vulnerable to money laundering and financial crime. This includes banks, payment institutions, electronic money institutions, fintechs, cryptocurrency businesses, insurers, and other organisations subject to AML regulations.

What is a UBO?

A UBO, or Ultimate Beneficial Owner, is the individual who ultimately owns or controls a business. In many jurisdictions, this refers to someone who owns or controls around 25% of the company or otherwise exercises significant influence over its operations, although the exact threshold can vary.

Is KYB the Same as CDD?

No. Customer Due Diligence (CDD) is the broader process of assessing customers and their risk levels. KYB is one element of CDD that focuses specifically on verifying business customers.

What are the main KYB checks?

The main KYB checks usually include verifying the business entity, confirming ownership and control, identifying ultimate beneficial owners, screening relevant parties against sanctions and watchlists, assessing the company’s activities and risk profile, and monitoring for changes over time.

What is Enhanced Due Diligence (EDD)?

Enhanced Due Diligence is a more detailed level of investigation applied when a customer presents a higher-than-normal risk.

This may involve additional documentation, more detailed ownership checks or increased monitoring.

How Often Should KYB Checks be Updated?

There is no universal rule. Most organisations use a risk-based approach, with higher-risk businesses reviewed more frequently. Many firms now supplement periodic reviews with automated ongoing monitoring.

What Happens If a Business Fails KYB Checks?

A business that cannot satisfy KYB requirements may be rejected during onboarding, asked to provide further information or subjected to enhanced due diligence. In some cases, an existing relationship may be terminated.

What is the Difference Between KYB & AML?

AML refers to the overall framework of laws, regulations, and controls designed to prevent financial crime. KYB is one of the processes organisations use to meet those AML obligations.

Can KYB be Automated?

Yes. Many organisations now use automated KYB platforms to verify company data, screen beneficial owners, and monitor risk indicators. Automation can significantly reduce onboarding times while improving consistency and accuracy.

What is the UBO Threshold?

A commonly used threshold is around 25% ownership or control, although specific requirements can vary depending on the jurisdiction and regulatory framework.

Does KYB Apply to Sole Traders?

Yes. While sole traders have simpler ownership structures than limited companies, regulated firms may still need to verify their identity, business activities and legitimacy before providing services.

KYB Compliance Built into your Payment Operations

As regulatory expectations continue to evolve, payment providers face increasing pressure to onboard merchants quickly while maintaining robust compliance controls. Achieving both can be difficult when verification processes rely heavily on manual reviews and fragmented data sources.

DECTA helps payment businesses build compliance into their day-to-day operations through integrated onboarding, risk management and payment infrastructure. By combining merchant onboarding tools with transaction monitoring and compliance capabilities, DECTA supports effective KYB procedures without sacrificing control.

To learn more about how DECTA can help streamline compliance, onboarding, and payment operations, explore our services.