KYC vs KYB: Differences, Processes and Technologies

The Know Your Customer (KYC) procedure consists of several actions that enable financial organisations and companies to verify their customers' identity to ensure the security of financial transactions.

It involves checking customer identity by examining legal documents (passport, identity card, proof of address, etc.), as well as verifying information using advanced methods such as voice or facial recognition. Finally, KYC requires constant transaction monitoring to detect any suspicious behaviour.

KYC serves several objectives:

• Combating money laundering: preventing criminals from using financial services for illegal activities.
• Fraud prevention: avoiding false declarations, identity theft or any other fraudulent activity.
• Regulatory compliance: ensuring compliance with various legal obligations (global, European and national).
• Customer risk assessment: determining whether a customer represents a risk related to terrorism financing, corruption or other illegal activities.

The Know Your Business (KYB) process enables companies and financial institutions to verify the identity of businesses with whom they work.

Like KYC, KYB involves collecting and verifying information. Instead of concerning customers, this involves businesses: company name, company registration number (Companies House number), legal status, address, directors' identity... Verification methods may again vary depending on organisations, and continuous monitoring is mandatory to detect any unusual activities.

KYB objectives are similar to those of KYC: combating money laundering, preventing fraud, complying with regulations and assessing business risks.

KYC and KYB share many common points, both in their application process and objectives. The main difference is that KYC focuses on customers, whilst KYB concerns businesses.

Here's a comparative table to better visualise the differences:

Clearly, KYC applies to natural persons. It's used by most banks, financial institutions and cryptocurrency platforms, as well as certain companies. It complies with AML standards aimed at combating money laundering.

KYB applies to legal entities and extends to B2B services and marketplaces. It serves to verify legal identity and business legitimacy to ensure secure collaboration.

KYC follows these steps:

1. Customer Identification and Document Collection

The company or bank asks the customer to provide documents to prove their identity. This often involves a valid identity card or passport. Documents must contain essential information (address, full name, date of birth, etc.), as well as a photo to physically identify the customer.

Banks notably collect these documents to justify customers' identity before allowing them to open an account.

2. Official Document Verification

Official documents are verified to ensure they're not fake and belong to the right people. To validate identity document authenticity, companies and banks can use several techniques. They can notably compare a customer photo with the one on their passport or identity card. It's also possible to use digital processes like remote identity verification providers.

3. Risk Assessment

Certain customers undergo more extensive verification because they may present higher risks. This is notably the case for Politically Exposed Persons (PEPs), who require more thorough assessments through Enhanced Due Diligence (EDD). This reinforced process helps verify that these persons aren't linked to illegal activities like corruption or money laundering, and haven't been subject to sanctions.

4. Continuous Monitoring

KYC doesn't stop after document verification and customer validation. Regular monitoring is essential to control financial transactions and detect any unusual behaviour that may indicate illegal activity. This could involve changes in customer habits, such as transaction amounts or frequencies that are out of the ordinary.

KYB process steps are quite similar to those of KYC. Indeed, objectives remain the same; only the controlled entities differ. KYB serves to verify commercial partners' and other professional collaborators' identity. It's therefore implemented as follows:

1. Collecting Company Information

Collected documents include company address, registration documents (Companies House registration number, VAT number, certificate of incorporation, etc.). Verifying the Companies House number is an essential step to confirm the partner company's legal existence. Some organisations may also request other documents like articles of association.

2. Information Verification

The organisation applying KYB then verifies information to ensure the company it wishes to collaborate with is real and its activity is legal. It also proceeds to identify PSC (Persons with Significant Control), representing the company's real owners. This verification is useful for spotting potential shell companies.

Like KYC, KYB applies a more extensive verification system for politically exposed persons. Additionally, the organisation checks government registers to ensure the partner company isn't subject to international sanctions.

3. Continuous Monitoring

Monitoring concerns transactions made by B2B partners to prevent any suspicious activity, but also media monitoring (press, social networks, etc.) to control collaborators' reputation and spot any negative elements.

Identity verification via KYC and KYB doesn't stop at document collection. It must also guarantee traceability and authenticity of commitments made by customers and companies. This is where electronic signature plays a key role.

In customer onboarding or B2B commercial relationship contexts, electronic signature enables:

• Certifying signatory identity: through authentication mechanisms (SMS, email, biometric verification), electronic signature reinforces KYC/KYB verification.
• Guaranteeing document traceability: each signature is timestamped and secured, in accordance with UK eIDAS regulations.
• Accelerating compliance processes: by digitalising contract signatures, account opening forms, agreements or regulatory documents, companies gain in speed and security.
• Ensuring legal value of commitments: an advanced or qualified electronic signature offers probative value equivalent to a handwritten signature.

With Yousign, you can:

• Verify the identity of your customers and partners using our Yousign Verify solution, which automates the verification of identity documents, bank details, and Kbis extracts.
• Have your documents signed in full compliance with simple, advanced, or qualified electronic signatures, tailored to your regulatory needs.
• Ensure the traceability and security of each transaction with qualified time stamping and secure evidence storage.
• Speed up your onboarding processes: reduce customer and partner validation times by several days through automation.

One of KYC's main challenges is countering identity theft attempts, which can lead to illegal activities using financial platforms. For this, KYC uses several technologies that enable customer identity recognition with digital documents. Authenticity is also verified by biometric authentication systems, helping combat the use of fakes.

KYB faces a significant challenge: the absence of a clear and universal method to maximally secure each step of the verification process. Organisations using KYB must therefore use several platforms and tools to multiply verifications and control a certain number of documents. They can, for example, consult commercial registers or apply AML controls like KYC to have a global vision of a company's identity and essential information.

Moreover, beyond identity verification, financial institutions must now guarantee their digital operational resilience against cyber threats, a key issue addressed by new regulations such as the Digital Operational Resilience Act (DORA).

KYC and KYB are processes that use several similar technologies to verify document compliance, customers for one, companies for the other. Here are the technologies frequently used in both cases:

Artificial intelligence and machine learning are used to analyse customer behaviour in KYC to detect anomalies and prevent fraud. These technologies also enable assessing risks that partner companies may present in B2B, within KYB.

Blockchain decentralises customer data and enables securing and verifying it. This is why it's particularly effective in the KYC process. It also facilitates transaction traceability between companies, reinforcing security within KYB. By encrypting and preventing data modifications, blockchain protects customer and company documents against hacking and fraud risks.

OCR enables automatically extracting information from a document, such as an identity card or passport. This system is particularly useful in the KYC process for verifying customer identity. It's also used for KYB, as it enables analysing company documents and verifying their authenticity.

Not all customers or companies present the same risk level, which is why a personalised approach is necessary for KYC and KYB. Higher-risk customers and companies require more resources, as institutions must conduct more comprehensive verifications. This is notably the case with politically exposed persons or companies operating in sensitive sectors, more exposed to fraud risks. Correctly categorising customers and companies therefore enables providing adequate efforts according to each profile.

Each organisation, company or institution must establish clear internal procedures so teams are informed of each KYC or KYB step. These procedures must detail means used for data collection and verification, as well as monitoring implementation.

Personnel involved in KYC or KYB must be properly trained. Each collaborator must master implemented tools and procedures. It's through perfect process knowledge that personnel will be able to detect suspicious behaviour, potential fraud and avoid errors.

Artificial intelligence, machine learning or blockchain are effective and modern technologies for automating data processing and guaranteeing transaction security. To optimise KYC and KYB processes, organisations have every interest in choosing the most efficient tools and using them judiciously.

KYC and KYB require continuous monitoring and regular data updates. To facilitate updates, companies can implement automatic systems and conduct audits to verify that all data is properly updated.

The 5 steps to successful KYC/KYB compliance:

• Step 1 - Identify legal obligations: Check regulations applicable to your sector (AML, anti-money laundering directives, MLR 2017, UK eIDAS).
• Step 2 - Choose the right tools: Select high-performance technological solutions (AI, OCR, blockchain, remote identity verification).
• Step 3 - Train your teams: Organise regular training for your collaborators on KYC/KYB processes and new threats.
• Step 4 - Automate collection and verification: Reduce delays and errors by automating verification and monitoring processes.
• Step 5 - Monitor and update continuously: Implement continuous monitoring of customers and partners, and regularly update data.

KYC and KYB are essential procedures for guaranteeing transaction security in B2C and B2B. The first focuses on individual customers, whilst the second targets companies. Nevertheless, both processes share similarities in their objectives, procedures and technologies used.

With rapid development of new technologies like AI, KYC and KYB will inevitably experience significant evolution in coming years. We can notably expect rapid automation development and increased security. Evolution in legal regulations is also expected, especially for KYB which currently evolves in a less dense legal framework than KYC.

By integrating identity verification and electronic signature solutions like Yousign, you can simplify your compliance processes whilst guaranteeing security and traceability of your transactions.