Content
1. Introduction - general provisions on KYC (Know Your Customer) and KYB (Know Your Business).
2. What is KYC?
3. What is KYB?
4.Differences between KYC and KYB.
5. Who needs to carry out KYC and KYB procedures for their counterparties?
6. Examples of KYC and KYB.
7. Combining KYC and KYB in one policy.
Conclusion.
2. What is KYC?
3. What is KYB?
4.Differences between KYC and KYB.
5. Who needs to carry out KYC and KYB procedures for their counterparties?
6. Examples of KYC and KYB.
7. Combining KYC and KYB in one policy.
Conclusion.
Know Your Customer ( KYC ) and Know Your Business ( KYB ) procedures are mandatory for financial institutions (FIS).
These two procedures are critical to ensuring the stability of the financial system, as they help minimize the risks associated with money laundering and support for terrorist organizations.
KYC and KYB are part of the customer due diligence (CDD) carried out by the organization. Depending on the level of risk identified as a result of KYC and KYB checks , different levels of monitoring are carried out throughout the entire period of cooperation.
The significant difference is that KYC refers to the verification of individuals or account holders, while KYB applies to the verification of other companies, including their ownership structure, legal compliance and operational performance.
KYC and KYB are part of the customer due diligence (CDD) carried out by the organization. Depending on the level of risk identified as a result of KYC and KYB checks , different levels of monitoring are carried out throughout the entire period of cooperation.
The significant difference is that KYC refers to the verification of individuals or account holders, while KYB applies to the verification of other companies, including their ownership structure, legal compliance and operational performance.
KYC is the process of verifying a customer's identity and monitoring their financial behavior.
The procedure begins when attracting a new client and continues throughout the entire period of cooperation.
In some countries, KYC is a mandatory element of the fight against money laundering and terrorist financing and serves the following purposes:
European Union:
KYB and KYC regulations in the European Union are defined through a series of Anti-Money Laundering Directives (AMLD).
4AMLD, which came into force in 2015, introduced customer due diligence (CDD) requirements, including KYC procedures, for organizations such as financial institutions, DNFBPs and virtual currency exchanges.
A key area is risk assessment for identifying and verifying the identity of clients, as well as assessing risks in business relationships.
5AMLD, adopted in 2018, strengthened the EU's AML / CFT framework . The obligations of companies under KYC/KYB have been significantly expanded.
A key point is due diligence for high-risk third countries, as well as the requirement to create beneficial owner registers for legal entities.
6AMLD, which came into force in December 2020, strengthened the EU's A ML / CFT regime by harmonizing criminal offenses and sanctions across member states.
Introducing criminal liability rules for money laundering, expanding liability for firms for non-compliance with A ML / CFT , expanding cooperation with competent authorities.
In 2021, the EU proposed the creation of a common anti-money laundering/anti-terrorist financing (AML/CFT) framework together with the EU Anti-Money Laundering Authority (AMLA).
This initiative, scheduled for implementation in 2024, aims to improve A ML / CFT efforts in EU Member States and strengthen coordination and cooperation in the fight against financial crime.
USA:
In the US, KYC is regulated by the Bank Secrecy Act ( BSA ) of 1970 and the US PATRIOT Act, passed in 2001.
The BSA directs financial institutions to assist U.S. government authorities in detecting and preventing money laundering. The USA PATRIOT Act expanded the scope of the BSA to include terrorist financing.
Two key rules governing Know Your Customer (KYC) processes include Financial Industry Regulatory Authority (FINRA) Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability).
FINRA Rule 2090 requires each broker-dealer to exercise reasonable care in opening and maintaining client accounts and to know and maintain a record of each client's profile and to identify each person authorized to act on the client's behalf.
FINRA Rule 2111 states that a broker-dealer must have a reasonable basis to believe that the recommendation is appropriate to the client based on the client's financial situation and needs. This rule requires that the broker-dealer conduct a review of the client's current facts and profile, including the client's other securities and investments, before making any purchase, sale or exchange of a security on the client's behalf.
The primary financial regulator in the United States is the Financial Crimes Enforcement Network ( FinCEN ), which is dedicated to protecting the nation's financial system from money laundering and fraudulent activity.
Established by FinCEN and other regulators help improve transparency across a variety of industries and activities. These rules require companies to exercise due diligence when operating in high-risk industries or when interacting with high-risk customers.
AIFC:
In the Astana International Financial Centre (AIFC) in Kazakhstan, there are strict regulatory requirements for conducting KYC (Know Your Customer) and KYB (Know Your Business) procedures. The regulatory acts of the AIFC require companies registered within the center to adhere to international standards in combating money laundering and terrorist financing.
Some of the key AIFC requirements for KYC and KYB procedures include:
- Establishing the client's identity;
- Understanding the nature of clients' activities;
- Establishing the legality of receiving funds;
- Money laundering risk assessment;
- Increased levels of trust, transparency and collaboration.
European Union:
KYB and KYC regulations in the European Union are defined through a series of Anti-Money Laundering Directives (AMLD).
4AMLD, which came into force in 2015, introduced customer due diligence (CDD) requirements, including KYC procedures, for organizations such as financial institutions, DNFBPs and virtual currency exchanges.
A key area is risk assessment for identifying and verifying the identity of clients, as well as assessing risks in business relationships.
5AMLD, adopted in 2018, strengthened the EU's AML / CFT framework . The obligations of companies under KYC/KYB have been significantly expanded.
A key point is due diligence for high-risk third countries, as well as the requirement to create beneficial owner registers for legal entities.
6AMLD, which came into force in December 2020, strengthened the EU's A ML / CFT regime by harmonizing criminal offenses and sanctions across member states.
Introducing criminal liability rules for money laundering, expanding liability for firms for non-compliance with A ML / CFT , expanding cooperation with competent authorities.
In 2021, the EU proposed the creation of a common anti-money laundering/anti-terrorist financing (AML/CFT) framework together with the EU Anti-Money Laundering Authority (AMLA).
This initiative, scheduled for implementation in 2024, aims to improve A ML / CFT efforts in EU Member States and strengthen coordination and cooperation in the fight against financial crime.
USA:
In the US, KYC is regulated by the Bank Secrecy Act ( BSA ) of 1970 and the US PATRIOT Act, passed in 2001.
The BSA directs financial institutions to assist U.S. government authorities in detecting and preventing money laundering. The USA PATRIOT Act expanded the scope of the BSA to include terrorist financing.
Two key rules governing Know Your Customer (KYC) processes include Financial Industry Regulatory Authority (FINRA) Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability).
FINRA Rule 2090 requires each broker-dealer to exercise reasonable care in opening and maintaining client accounts and to know and maintain a record of each client's profile and to identify each person authorized to act on the client's behalf.
FINRA Rule 2111 states that a broker-dealer must have a reasonable basis to believe that the recommendation is appropriate to the client based on the client's financial situation and needs. This rule requires that the broker-dealer conduct a review of the client's current facts and profile, including the client's other securities and investments, before making any purchase, sale or exchange of a security on the client's behalf.
The primary financial regulator in the United States is the Financial Crimes Enforcement Network ( FinCEN ), which is dedicated to protecting the nation's financial system from money laundering and fraudulent activity.
Established by FinCEN and other regulators help improve transparency across a variety of industries and activities. These rules require companies to exercise due diligence when operating in high-risk industries or when interacting with high-risk customers.
AIFC:
In the Astana International Financial Centre (AIFC) in Kazakhstan, there are strict regulatory requirements for conducting KYC (Know Your Customer) and KYB (Know Your Business) procedures. The regulatory acts of the AIFC require companies registered within the center to adhere to international standards in combating money laundering and terrorist financing.
Some of the key AIFC requirements for KYC and KYB procedures include:
- Conducting thorough customer and counterparty due diligence to identify identity, purposes, and sources of funds.
- Systematic monitoring of clients' financial transactions to detect suspicious activities.
- Establishing and maintaining KYC/KYB policies in accordance with international standards and FATF recommendations.
- Training employees of financial institutions on KYC and KYB procedures.
- Compliance with laws and regulatory acts governing anti-money laundering and counter-terrorist financing efforts.
Definition and Basic Principles:
KYB - Know Your Business - is the process of verifying the ownership of a company and the legality of its activities before entering into a business relationship.
KYB's main goal is to help assess and understand the risks associated with anti-money laundering and countering the financing of terrorism. As part of this process, companies must review the organizations they work with to determine whether they are genuine or being used for illegal purposes.
Once the business's legitimacy has been confirmed, its ownership structure must also be established, including the company's directors and ultimate beneficial owner (UBO). Identifying these individuals can help determine whether a business is legitimate, whether there are ties to illegal activity, and whether anonymous parties are involved.
Various regulators, including the UK Financial Conduct Authority, the European Banking Authority and the FATF, require the identification and verification of companies and ultimate beneficial owners (UBO) in their guidance.
KYB allows companies to assist law enforcement by reporting suspicious activity and providing accessible information about customers or activity under investigation.
Insufficient KYB levels may be a warning sign regarding anti-money laundering. Thus, when a company engages with a corporate client before conducting the necessary due diligence procedures, it exposes the client to the risk of money laundering or terrorist financing.
KYB - Know Your Business - is the process of verifying the ownership of a company and the legality of its activities before entering into a business relationship.
KYB's main goal is to help assess and understand the risks associated with anti-money laundering and countering the financing of terrorism. As part of this process, companies must review the organizations they work with to determine whether they are genuine or being used for illegal purposes.
Once the business's legitimacy has been confirmed, its ownership structure must also be established, including the company's directors and ultimate beneficial owner (UBO). Identifying these individuals can help determine whether a business is legitimate, whether there are ties to illegal activity, and whether anonymous parties are involved.
- Understanding the nature of the company's activities;
- Legality of the source of funds;
- Money laundering risk assessment;
- Identification of anonymous parties to a transaction;
- Establishing the ownership structure,
- Identification of a legal entity. Obtaining basic information about a business such as its legal name, registration number and type.
- Checking legal status. Verification of legal grounds, registration with government agencies and relevant registers.
- Assessment of ownership structure. Determination of the company's ownership structure, including identification of beneficial owners.
- Verification of beneficial owners. Identification of beneficial owners, verification of their identity, as well as verification of sanctions and reputational risks.
- Assessment of business activity. Identification of the company's scope of activity.
- Regulatory Compliance Assessment. Checking compliance with regulatory requirements and compliance with legal requirements (availability of an appropriate license).
- Risk assessment. It is necessary to analyze the risks based on such factors as its industry, geographic location, ownership structure and reputation, as well as being under sanctions.
Various regulators, including the UK Financial Conduct Authority, the European Banking Authority and the FATF, require the identification and verification of companies and ultimate beneficial owners (UBO) in their guidance.
KYB allows companies to assist law enforcement by reporting suspicious activity and providing accessible information about customers or activity under investigation.
Insufficient KYB levels may be a warning sign regarding anti-money laundering. Thus, when a company engages with a corporate client before conducting the necessary due diligence procedures, it exposes the client to the risk of money laundering or terrorist financing.
Approach to identity and business verification.
The widespread use of new technologies through the use of the Internet creates a number of risks, which KYC and KYB policies are designed to minimize . Both policies are aimed at combating money laundering, terrorist financing and corruption.
Within Due diligence KYC allows you to limit interaction with individuals who want to enter into business relationships for criminal purposes.
KYB, in turn, confirms the legality of the company’s activities, the absence of risks for counterparties, and makes the company’s receipt of funds transparent and allows you to form an idea of the factors that may affect business relationships.
The goals of both policies are to identify the counterparty (individual or legal entity), verify its compliance with the requirements, and minimize the risks of cooperation.
Goals and objectives of KYC :
KYC risk management focuses on analyzing and minimizing financial and compliance risks associated with clients entering long-term business relationships.
In addition, a physical address check is carried out, as well as business risks based on the firm's geographic location. If there is a high level of corruption in the region where the company operates, additional measures may be taken to minimize adverse consequences.
The widespread use of new technologies through the use of the Internet creates a number of risks, which KYC and KYB policies are designed to minimize . Both policies are aimed at combating money laundering, terrorist financing and corruption.
Within Due diligence KYC allows you to limit interaction with individuals who want to enter into business relationships for criminal purposes.
KYB, in turn, confirms the legality of the company’s activities, the absence of risks for counterparties, and makes the company’s receipt of funds transparent and allows you to form an idea of the factors that may affect business relationships.
The goals of both policies are to identify the counterparty (individual or legal entity), verify its compliance with the requirements, and minimize the risks of cooperation.
Goals and objectives of KYC :
- protection of financial integrity, creation of a comprehensive framework for preventing illegal transactions;
- identification of suspicious transactions;
- verification and identification;
- interaction with reliable persons;
- compliance with legal requirements;
- client identification;
- client acceptance policy (approval or rejection of applications upon identification);
- transaction monitoring;
- Management of risks.
- protection of the financial integrity of the company;
- establishing the source of the company’s funds, checking its legality;
- assessment of the company’s money laundering risks;
- establishing the business ownership structure.
KYC risk management focuses on analyzing and minimizing financial and compliance risks associated with clients entering long-term business relationships.
- Review and update KYC processes to ensure they comply with the latest regulations, including Customer Due Diligence (CDD) and Anti-Money Laundering (AML) regulations;
- Carrying out multi-factor authentication of the client’s identity;
- CDD – comprehensive verification of clients with identification of the source of funds;
- EDD – enhanced due diligence for those clients who pose a high degree of risk;
- Transaction monitoring.
In addition, a physical address check is carried out, as well as business risks based on the firm's geographic location. If there is a high level of corruption in the region where the company operates, additional measures may be taken to minimize adverse consequences.
- Government bodies;
- Financial institutions, banks, insurance companies;
- Companies operating in the field of financial technology ( FinTech in the AIFC).
For example, in the US, FinCEN sets rules that require financial institutions to understand the nature and purpose of their customer relationships, creating a risk profile for each customer. This serves as a basis for identifying suspicious activities on the part of clients.
In addition, financial institutions are required to maintain current and accurate information about their customers and continue to monitor their accounts for suspicious and illegal activity. If such activity is detected, they must report their findings immediately.
Banks:
By collecting enough information about a potential customer through the KYC process, banks and financial institutions can ensure that they only engage with customers who are least likely to pose an unacceptable level of risk to them in accordance with their internal risk management policies.
KYC allows banks to assess and control the risks associated with each customer and prevent threats such as money laundering, identity theft, terrorist financing and money mules.
Companies operating in the field of financial technologies:
Fintech companies must also provide KYC and KYB procedures. In addition, they must comply with the general requirements of the FATF . Some of the key challenges faced by companies in this sector include:
- Procedures may complicate user registration and payment processing;
- Failure to comply with requirements entails serious sanctions, since fintech companies often have a cross-border scope of activity, which results in many obligations in different jurisdictions;
- Fraudsters often use fake personal data to complete transactions or carry out phishing attacks;
- Chargebacks negatively impact businesses due to high fees, wastage associated with product delivery, transaction processing costs, and time spent resolving disputes.
KYC on Binance:
Binance Terms of Use Clause 7.3 contains the following provision: You must comply with our identity verification procedures before you are allowed to open a Binance Account and access the Binance Services , independently or through third parties, by providing us with certain information about yourself and, where appropriate, all of your Permitted Users. All information must be complete, accurate and truthful. It is necessary to update this information whenever it changes.
You authorize us to make requests, whether directly or through third parties, that we deem necessary to verify your identity and the identity of any Authorized Users, or protect you and/or us from fraud, money laundering, terrorist financing or other financial crime, and take any action we deem necessary based on the results of such requests.
Binance platform uses a three-level verification system: intermediate, advanced and advanced pro levels. Details may vary depending on where the user lives, but generally the process looks like this:
To pass you need:
Instructions for completing KYB on Binance:
To pass you need:
Binance Terms of Use Clause 7.3 contains the following provision: You must comply with our identity verification procedures before you are allowed to open a Binance Account and access the Binance Services , independently or through third parties, by providing us with certain information about yourself and, where appropriate, all of your Permitted Users. All information must be complete, accurate and truthful. It is necessary to update this information whenever it changes.
You authorize us to make requests, whether directly or through third parties, that we deem necessary to verify your identity and the identity of any Authorized Users, or protect you and/or us from fraud, money laundering, terrorist financing or other financial crime, and take any action we deem necessary based on the results of such requests.
Binance platform uses a three-level verification system: intermediate, advanced and advanced pro levels. Details may vary depending on where the user lives, but generally the process looks like this:
- Collection and verification of the client’s personal data provided by the user himself and confirmed using an official identification document issued by government authorities.
- Real-time authentication that matches the user's face to a photo on an official document.
- Verify the user's identity using World-Check Risk Intelligence - the largest database of high-risk individuals subject to sanctions and political figures.
To pass you need:
- authenticate in your personal account;
- start the verification procedure;
- select your country of residence;
- enter all personal information (nationality, full name , address, country/region, date of birth and other data);
- upload an identity document;
- shoot a live video using the manual to confirm authenticity.
Instructions for completing KYB on Binance:
To pass you need:
- authenticate in your personal account;
- start the verification procedure;
- enter information about the organization (name, country of registration, organizational and legal form, registration number, type of activity and shareholder structure);
- specify fiat services if necessary.
- Basic information:
- name of the organization, registration number and date of foundation;
- address, including actual and legal;
- source of income and source of financing;
- purpose of application, contact number and company website.
- Related parties:
- director or similar person;
- ultimate beneficial owners (if any);
- controlling persons;
- authorized traders;
- choosing a trader as the main trader and passing verification;
- creation of a power of attorney.
- Uploading documents:
The specific list of required corporate documents depends on the country/region of registration, organizational and legal form, type of activity and composition of shareholders.
- Review the declaration and submit the application.
KYC and KYB are procedures that target different individuals when establishing a business relationship.
Often, the procedure is completed through a service on the company’s website, so combining them into one policy does not interfere with the verification procedure and is not directly prohibited.
Modern fintech companies are trying to keep up with the times by integrating knowledge of business (KYB) processes with knowledge of customer (KYC) verification and core technology solutions to provide application programming interfaces (APIs).
Often, the procedure is completed through a service on the company’s website, so combining them into one policy does not interfere with the verification procedure and is not directly prohibited.
Modern fintech companies are trying to keep up with the times by integrating knowledge of business (KYB) processes with knowledge of customer (KYC) verification and core technology solutions to provide application programming interfaces (APIs).
KYB (Know Your Business) and KYC (Know Your Customer) procedures are important tools to combat money laundering, terrorist financing and other forms of financial crime. They are necessary to ensure transparency and security of financial transactions, as well as to comply with regulatory requirements.
In European Union (EU) countries, KYB and KYC procedures are regulated in accordance with the EU Anti-Money Laundering and Anti-Terrorism Financing Directive (AML Directive ). This directive sets mandatory standards for banks, financial institutions and other companies engaged in financial activities regarding the conduct of due diligence on customers and counterparties. The AML Directive also establishes requirements for conducting detailed analysis of clients' business structures.
The Astana International Financial Center (AIFC) in Kazakhstan also has laws and regulations governing KYB and KYC procedures. AIFC applies international standards in the field of combating money laundering and terrorist financing, including the recommendations of the FATF (Financial Action Task Force). Companies registered with the AIFC are required to comply with these standards when conducting audits of clients and counterparties.
In the United States of America, KYB and KYC procedures are regulated by legislation such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act. These laws establish requirements for banks, financial institutions and other organizations to conduct customer background checks and also require that customer information be provided to law enforcement agencies.
Thus, KYB and KYC procedures are mandatory for banks, financial institutions and companies engaged in financial activities to avoid the use of their services for illegal purposes. These procedures are regulated by national legislation and international standards in various jurisdictions such as the EU, AIFC and the USA.
In European Union (EU) countries, KYB and KYC procedures are regulated in accordance with the EU Anti-Money Laundering and Anti-Terrorism Financing Directive (AML Directive ). This directive sets mandatory standards for banks, financial institutions and other companies engaged in financial activities regarding the conduct of due diligence on customers and counterparties. The AML Directive also establishes requirements for conducting detailed analysis of clients' business structures.
The Astana International Financial Center (AIFC) in Kazakhstan also has laws and regulations governing KYB and KYC procedures. AIFC applies international standards in the field of combating money laundering and terrorist financing, including the recommendations of the FATF (Financial Action Task Force). Companies registered with the AIFC are required to comply with these standards when conducting audits of clients and counterparties.
In the United States of America, KYB and KYC procedures are regulated by legislation such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act. These laws establish requirements for banks, financial institutions and other organizations to conduct customer background checks and also require that customer information be provided to law enforcement agencies.
Thus, KYB and KYC procedures are mandatory for banks, financial institutions and companies engaged in financial activities to avoid the use of their services for illegal purposes. These procedures are regulated by national legislation and international standards in various jurisdictions such as the EU, AIFC and the USA.
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