KYC vs. KYB: Key differences, requirements, and use cases

KYC and KYB are both due diligence frameworks used to verify who—or what—you're doing business with. KYC focuses on individual customers, while KYB verifies business entities. With millions in fines issued to non-compliant firms in recent years, you need to understand the differences, requirements, and when to apply each process.

What is KYC (Know Your Customer)?

“Know Your Customer (KYC)” is the process financial institutions use to verify a customer’s identity and assess the risk of providing financial services. These checks reduce fraud and support compliance with regulations that govern the financial industry.

The core components of KYC include:

• Customer identification program (CIP): Collecting basic information such as name, date of birth, address, and identification numbers to confirm identity
• Customer due diligence (CDD): Reviewing business activities, transaction behavior, and source of funds to assess risk
• Enhanced due diligence (EDD): Applying deeper review for high-risk customers, including politically exposed persons or customers in high-risk jurisdictions
• Ongoing monitoring: Reviewing accounts and transactions over time to identify unusual activity or changes in risk

KYC checks occur during onboarding, when customers complete unusual transactions, and during periodic reviews. You may conduct more frequent assessments for higher-risk customers and fewer for lower-risk profiles.

KYC requirements and documentation

KYC requirements focus on verifying a customer's identity through reliable documentation and structured review steps. You collect documents, authenticate them, and assess the customer’s overall risk based on factors such as occupation, location, and transaction behavior.

Common KYC documents include:

• Government-issued identification: A passport, driver’s license, or national ID card
• Proof of address: Utility bills, bank statements, or lease agreements dated within the past three months
• Tax identification: A Social Security number or tax identification number
• Additional documents for high-risk customers: Employment information or source of funds statements

Verification begins with collecting and verifying documents, often through government databases or trusted third-party services. You then evaluate the customer’s risk profile, screen for sanctions or adverse media, and document findings to meet regulatory retention requirements.

Verification levels

Different risk levels require different levels of verification. You adjust the depth of review based on factors such as a customer's location, transaction behavior, and overall risk profile.

• Simplified due diligence: Used for low-risk customers, requiring basic identity verification and limited documentation
• Standard due diligence: Applied to most customers, involving standard identity checks and a baseline risk assessment
• Enhanced due diligence: Required for high-risk customers, with additional documentation and deeper review of source of wealth and related factors
• Ongoing due diligence: Continuous monitoring of all customer accounts to identify changes in behavior or risk over time

KYC compliance regulations

KYC regulations outline how institutions must identify customers and evaluate the risks involved in working with them. These rules guide how institutions collect documentation, screen customers, and maintain records.

Key regulations include:

• USA PATRIOT Act: Requires customer identification programs and reporting of suspicious activity
• Bank Secrecy Act (BSA): Establishes recordkeeping and reporting requirements to prevent money laundering
• EU Anti-Money Laundering Directives: Define customer due diligence and beneficial ownership expectations across the European Union
• FATF recommendations: Provide global standards that many jurisdictions adopt into local law

Regulators impose significant penalties when institutions fail to meet these requirements. TD Bank received a $3 billion fine for AML failures that continued for nearly a decade, and global organizations received $1.23 billion in penalties in the first half of 2025 for KYC and AML violations.

Penalties can also result in operational restrictions, leadership changes, and lasting reputational damage. If you're responsible for compliance, repeated issues may lead to heightened regulatory scrutiny and higher operational costs.

Industry considerations

Different industries have additional KYC expectations based on their products, services, and risk profiles. Securities firms follow FINRA customer identification rules, and cryptocurrency exchanges adhere to FinCEN guidance for digital asset providers, often with added requirements tied to state licensing. Insurance companies verify beneficiaries and assess policyholder risk, and real estate professionals review property buyers to prevent money laundering through high-value transactions.

Fintech companies and payment processors face evolving verification requirements as regulators respond to growth in digital financial services. If you operate in these sectors, you may need to verify customers across multiple geographies and monitor transaction activity to remain compliant.

KYC success story

Strong KYC programs can meaningfully reduce fraud at scale. HSBC illustrates how effective identity verification tools strengthen customer protection.

As of 2021, HSBC’s Voice ID system had prevented more than £249 million in attempted fraud since its launch in 2016. More than 2.8 million customers enrolled, and telephone banking fraud fell by 50 percent. By 2024, more than 82% of global financial institutions had adopted at least one biometric authentication method.

What is KYB (Know Your Business)?

“Know Your Business” (KYB) is the process of verifying the legitimacy, ownership, and activities of a business. While KYC focuses on individuals, KYB confirms that a company exists legally, identifies who controls it, and evaluates whether the business presents compliance or fraud risk.

Businesses often have complex structures with multiple ownership layers or subsidiaries. KYB helps you trace these relationships, identify beneficial owners, and confirm that the business operates for a legitimate purpose.

KYB reviews also include screening companies and owners against sanctions lists and identifying links to politically exposed persons. You verify required licenses and confirm that the business maintains a real physical presence rather than a mail drop or virtual office. These steps reduce the risk of onboarding fraudulent or high-risk entities.

KYB verification process

KYB verification begins by confirming a business’s legal formation. You review certificates of incorporation, registration numbers, and governing documents and validate them with the appropriate registries.

Ownership verification traces the corporate structure to identify parent entities and the individuals who ultimately control the business. You document ownership percentages and confirm the information is accurate and complete.

Business activity reviews help you determine whether the company’s operations match its stated purpose. You examine products or services, customer segments, transaction volumes, and geographic reach to assess overall risk.

Ultimate beneficial owner

Ultimate beneficial owner identification reveals the individuals who ultimately own or control a business. Regulations typically define UBOs as people who hold more than 25 percent ownership or significant decision-making authority. You verify these individuals using the same standards applied to KYC checks to ensure the business is not masking undisclosed or high-risk owners.

KYB documentation requirements

KYB documentation helps you confirm a company’s legal formation, ownership structure, and operational legitimacy. These records show where the business was established, who controls it, and whether it is authorized to operate in its industry.

Common KYB documents include:

• Certificate of incorporation: Proof of legal formation, including registration number, formation date, and jurisdiction
• Articles of association or bylaws: Governance documents outlining shareholder and director authority
• Ownership and shareholder registry: A complete record of owners and their control percentages
• Business licenses and permits: Authorizations required to conduct the company’s stated activities

You also confirm that the business maintains a real physical presence rather than a virtual office. Evidence may include lease agreements, utility bills, or property records.

Financial and licensing requirements

Financial and licensing records help you evaluate a company’s legitimacy and scale. Recent financial statements, tax returns, or audit reports confirm reported revenue and business activities. You may also review statements from existing accounts or projections for new ventures.

Licensing requirements vary by industry and jurisdiction. Institutions verify that regulatory approvals, medical licenses, customs registrations, or professional certifications are current and appropriate for the company’s stated operations.

Key differences between KYC and KYB

KYC focuses on individuals, while KYB reviews the legitimacy, ownership, and activities of business organizations. These differences reflect the risks each process is designed to address.

Documentation requirements also differ. KYC relies on personal documents such as passports or proof of address, while KYB requires incorporation records, ownership registries, and business licenses, often across multiple jurisdictions.

Complexity levels

Verifying an individual’s identity is usually a straightforward process. Most KYC checks involve reviewing a small set of personal documents and screening the customer against watchlists, which keeps turnaround times relatively short.

Evaluating a business is more involved. You may need to trace ownership through multiple entities, confirm control percentages, and retrieve documents from different registries or jurisdictions. These additional layers make KYB reviews deeper and more time-consuming.

Risk factors

For individuals, risk is typically tied to behavior or identity concerns. Red flags include unusual transactions, inconsistent personal information, altered identification documents, or links to high-risk jurisdictions.

For businesses, risk stems from structural or operational issues. Warning signs include missing or outdated licenses, no physical presence, complex ownership chains without a clear purpose, or activities that do not match expected transaction patterns.

When to use KYC

KYC applies when a customer is acting as an individual. You use KYC when someone opens a personal account, requests a credit card, or uses payment or investment services.

Individuals making wire transfers, purchasing securities, or conducting other personal transactions also undergo KYC. Freelancers and sole proprietors using their own names typically fall under KYC since there is no separate business entity.

When to use KYB

KYB applies when a company or other business entity seeks financial services. You conduct KYB when businesses open commercial bank accounts, apply for credit, or request merchant or payment services.

Even small businesses with one or two owners require KYB because you must confirm the company’s legal status, ownership structure, and operational legitimacy.

When to use both

Many business relationships require both KYC and KYB. You verify the business through KYB and perform KYC on owners, authorized signers, and key executives. This is common when businesses open accounts, invest in financial products, or process payments.

The role of KYC and KYB in anti-money laundering (AML)

KYC and KYB form the foundation of an AML program because they help you confirm who customers are, how they operate, and the risk they may pose. These steps support informed onboarding decisions and help prevent criminals from using false identities or shell companies.

By identifying beneficial owners and verifying the legitimacy of business operations, you reduce opportunities for money laundering or other illicit activity. Ongoing monitoring strengthens these protections by identifying changes in behavior or risk over time.

Customer due diligence (CDD) requirements

CDD applies to most customers and businesses during onboarding. You collect identifying information, authenticate documents, and assess risk factors such as geography, industry, and expected activity. Screening checks may include sanctions lists and adverse media sources. CDD creates a baseline for how a customer is expected to use an account. This helps you identify behavior that falls outside normal patterns and may require further review.

Enhanced due diligence (EDD) requirements

EDD applies to higher-risk customers, including politically exposed persons, businesses operating in high-risk jurisdictions, or customers requesting services without a clear purpose. Complex ownership structures or unusually high transaction volumes can also trigger EDD. EDD requires deeper investigation into source of funds or wealth, additional documentation, and more frequent monitoring so you understand the risks associated with the relationship.

Monitoring and review

Monitoring keeps customer information up to date and helps you identify changes in behavior or activity. Low-risk customers may undergo periodic reviews, while higher-risk customers require more frequent assessments. Significant shifts in activity or the emergence of new risk indicators can trigger a review at any time.

Best practices for implementing KYC and KYB

Technology streamlines identity verification by reducing the manual work involved in reviewing documents and validating customer information. Modern platforms handle routine checks, draw from reliable data sources, and surface issues that need your judgment.

A risk-based approach helps you keep verification balanced and effective. Low-risk customers move through simplified checks, while higher-risk relationships receive deeper review. Clear internal procedures and consistent workflows support accuracy and help your team adapt as regulations evolve.

Risk and compliance

A risk-based framework ensures your resources are directed where they are most needed. Low-risk customers with straightforward profiles undergo simplified checks, while high-risk customers receive additional review.

Balancing compliance with customer experience is essential. Clear expectations about required documents and timelines reduce friction during onboarding, and digital submission tools help customers complete verification without delays.

Common challenges and solutions

Implementing KYC and KYB often uncovers operational gaps, and addressing these challenges early strengthens your verification program.

Digital verification

• Challenge: Documents captured on mobile devices or uploaded at low quality can be difficult to validate, and fraudsters continue to create more convincing fake IDs
• Solution: Use document authentication tools, optical character recognition, and liveness checks to confirm the person is present and the document is legitimate

Cross-border verification

• Challenge: Customers and businesses that operate internationally rely on registries with varying levels of accessibility, formatting, and language requirements
• Solution: Work with global verification providers or third-party services that specialize in retrieving, translating, and validating international corporate and identity documents

Recordkeeping and monitoring

• Challenge: Customer information changes over time, including addresses, ownership structures, and operational details, which makes manual updates difficult to maintain
• Solution: Use automated monitoring tools and scheduled review cycles to keep records current and identify changes that affect risk or require further review

Technology and tools

The global identity verification market reached $11.97 billion in 2024 and continues to expand as institutions adopt tools that automate routine checks and improve accuracy. These technologies help you manage growing verification volume and meet compliance expectations more efficiently.

Digital verification platforms

Digital verification platforms centralize document collection, screening, and monitoring in a single workflow. They guide customers through document uploads and biometric checks, while your team uses dashboards to review alerts and manage cases.

AI and machine learning applications

AI strengthens identity verification by detecting document irregularities and extracting information from unstructured records. Machine learning models surface unusual behavior and improve over time, helping you identify risk earlier and reduce manual review.

System integrations

System integrations connect verification tools with core banking platforms, sanctions screening services, and customer relationship systems. These connections keep data consistent and support real-time screening during onboarding and ongoing monitoring.

Tips for businesses: Ensuring compliance

Deloitte’s Center for Financial Services predicts that gen AI could enable fraud losses in the United States to reach $40 billion by 2027. A strong compliance program helps you limit this risk by establishing clear procedures, consistent oversight, and reliable verification practices.

• Create internal policies and procedures: Document how verification is performed, what information is required, and when to escalate issues
• Train staff on verification requirements: Ensure employees understand documentation expectations, common red flags, and obligations specific to your industry
• Perform regular audits and updates: Review controls, update procedures for regulatory changes, and document findings for regulatory examinations
• Work with compliance partners: Use specialized vendors, advisors, or industry groups to stay informed about new requirements and best practices

Red flags to watch for

Recognizing warning signs early helps you limit exposure to fraud and financial crime.

• Suspicious customer behaviors: Customers who avoid providing standard information, offer unclear explanations, or show unusual urgency
• Documentation inconsistencies: Details that do not match across documents or appear altered
• High-risk indicators: Complex ownership chains without clear purpose, operations in high-risk jurisdictions, or activities that conflict with stated business models

Ramp helps you limit your exposure to fraud

Ramp prioritizes fraud prevention, security, and data protection across every product. Our dedicated Trust Center outlines the controls and practices that help protect customer information.

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