GLOSSARY · BLOCKCHAIN & WEB3
KYB (Know Your Business)
Verification process for companies and legal entities to prevent fraud and comply with regulations.
WHAT IS IT? · FOR DUMMIES
KYB, or Know Your Business, is the process by which a company verifies the identity and legality of another company before starting a business relationship. It's like reviewing the “papers” of that company to make sure that it really exists, to know who its owners or representatives are, and to verify that everything is in order from a legal and financial point of view.
This procedure helps prevent fraud, money laundering and other financial crimes, and is especially important in sectors such as finance, technology or blockchain.
WHAT IS IT? · PRO
KYB (Know Your Business) is a mandatory verification process carried out by financial institutions, fintechs, blockchain platforms, service providers and other regulated organizations, in order to confirm identity, legal structure, final beneficiaries (UBOs - Ultimate Beneficial Owners) and the operational legitimacy of a company or legal entity.
This procedure is an extension of the process KYC (Know Your Customer), but focused on legal entities rather than individuals. Its main objective is to ensure that the company with which a business or financial relationship is going to be established complies with current laws, does not hide illegal activities and does not represent a risk of money laundering, terrorist financing or other financial crimes.
The implementation of KYB is essential to comply with international regulations such as AML (Anti-Money Laundering), CTF (Counter-Terrorist Financing), and other sectoral or regional regulatory frameworks (such as 5th EU AML Directive, the FinCEN in the US, or the FATF recommendations).
In the blockchain context, KYB can also be applied to decentralized platforms, cryptocurrency exchanges, providers of enterprise wallets, DAOs and tokenization services, ensuring that participating entities are legitimate and properly identified.
In short, KYB is an essential tool for ensuring transparency, mitigating legal and reputational risks, and strengthening the integrity of the business and financial ecosystem.
01 / Key points
- Verification of the legal existence and official registration of the company.
- Identification of legal representatives and authorized signatories.
- Identification and validation of final beneficiaries (individuals with direct or indirect control over the company).
- Review of the corporate structure and possible relationships with high-risk jurisdictions.
- Continuous monitoring and periodic review of the company's status.
02 / Advantages
- It prevents corporate fraud.
- It increases security in B2B relationships.
- It facilitates transparency in the business network.
- Required to operate legally in regulated sectors.
03 / Disadvantages
- Bureaucratic process if not properly automated
- Requires access to reliable, up-to-date and verifiable databases
- Costs associated with identity providers or external verification services
- It can create friction in the corporate user experience if it's not well designed
- In DAOs or decentralized platforms, their technical and legal application is still a challenge
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