What are KYB and KYC?

The French banking regulator, the Autorité de contrôle prudentiel et de résolution (ACPR), has introduced a number of obligations for marketplaces. These include KYB ("Know Your Business") and KYC ("Know Your Customer") procedures, both of which are highly specialized and regulated to avoid any risk of fraud, money laundering or terrorist financing. Let's take a look at KYB and KYC in this article.

KYB and KYC: mandatory procedures

KYC ("Know Your Customer") and KYB ("Know Your Business") are two mandatory procedures introduced by the ACPR to combat fraud, money laundering and the financing of terrorist activities. Companies must therefore comply with them by collecting and verifying certain information on the identity of their customers and business partners.

In practice, the term KYC is most often used, which can sometimes obscure the importance of KYB, the collection of information on a company as a legal entity. KYB is the compilation of official documents designed to guarantee the integrity and identity of the legal entity with which the company has a relationship.

KYB and KYC procedures: what's the difference?

The Know Your Business (KYB) and Know Your Customer (KYC) processes have a number of points in common, as well as significant differences. In fact, these procedures are in line with LCB-FT (fight against money laundering and the financing of terrorism) regulations, and aim to make financial transactions as secure as possible, while preventing money laundering. The main difference lies in the type of customer concerned.

KYC regulations apply to individuals, while KYB standards apply to companies and legal entities. Thus, a company offering services to professionals (B2B) must necessarily use the KYB process.

KYB's role in securing B2B transactions

KYB (Know Your Business) plays an important role in securing B2B ("Business to Business") transactions, since it guarantees that every company the company deals with is reliable, legitimate and compliant with current legislation.

The KYB process verifies the company's identity, including its legal registration and legal information. This includes the company's registration number and the identity of its directors... The aim is to avoid any risk of the company entering into commercial relations with fraudulent or fictitious companies. In addition, KYB assesses the risks associated with a company by checking its business relationships, structure and history, to avoid doing business with a company linked to money laundering and/or terrorist financing.

KYB and KYC: how do they apply to marketplaces?

Marketplaces are online platforms that generate a considerable number of transactions every day, bringing together an ever-growing variety of players, both buyers and sellers. These different parties never meet in person, which means that online identity verification systems are essential. To avoid any risk, marketplaces are strictly supervised and are among the most regulated activities on the web. Since they carry out collection operations on behalf of third parties, they can be likened to financial organizations. This explains why marketplaces are subject to KYC collection procedures, on pain of administrative and/or criminal sanctions. Becoming a seller on a marketplace therefore implies submitting to "Know Your Customer" obligations and demonstrating constant vigilance, imposed by regulations.

KYC/KYB verification: what documents should I provide?

KYC verification requires the user to be identified. Individuals are often required to undergo a double identity check, with a main identity document (passport, ID card, etc.) and a second document such as a health insurance card or driver's license. On the individual's side, this verification is generally not perceptible, as it takes place at the time of account verification or payment of the online purchase. Marketplaces can also use their users' means of payment to validate elements of the KYC procedure, always respecting data confidentiality.

For the KYB procedure, the company must provide the following documents:

• identification of the company's legal representative and shareholders owning 25% or more of the company's shares,
• the company's Kbis extract, less than 3 months old,
• the legal document justifying the company's shareholding structure,
• the official document justifying the company's registration with ORIAS (Organisme pour le registre unique des intermédiaires en assurance, banque et finance),
• the company's bank details.

Rules for implementing KYC and KYB verification processes

Implementing KYC (Know Your Customer) and KYB (Know Your Business) verification processes in the best possible conditions is essential for all companies at risk of fraud or money laundering. These processes can be implemented in various stages.

Taking legal constraints into account

The first step is to identify the legal requirements in force for the structures concerned, such as marketplaces. KYC requirements vary from country to country and from sector to sector. However, they generally include the obligation to verify customer identity and track transactions. The information gathered is kept for 5 years after the transaction dates.

KYB requirements, for their part, mainly concern corporate clients, and include a number of obligations such as verifying legal information about the entity.

Collecting the required documents

For KYC, the company must collect proof of identity and domicile. In addition to KYC documents, companies must comply with KYB requirements such as collecting official registration documents, verifying the legal status of companies with which they are connected, listing major shareholders and certain key beneficiary information.

The marketplace collects the requested KYC/KYB documents and forwards them to the PSP (payment service provider), which is responsible for analyzing the documents submitted to ensure that they comply with the requirements of the financial institutions.

Identity verification technologies

To facilitate the process, companies can implement verification technologies using digital tools. These enable identity documents to be verified in real time, as in the case of biometric authentication or Optical Character Recognition (OCR).

On the corporate side, KYB verification can integrate third-party services that facilitate the process, notably by accessing corporate databases. This makes it possible to check that documents are genuine and that directors and shareholders have no background incompatible with their duties.

The role of automation in risk management

Today, many companies advocate automation as part of their day-to-day risk management. Systems for collecting, verifying and monitoring KYC and KYB data can be automated, facilitating the process while reducing the risk of human error. The tools implemented can also include solutions designed to assess risk by analyzing the data collected, looking for high-risk customers or companies.

Reporting suspicious activity

In the event of suspicious activity, the company initiates a reporting procedure to the appropriate authorities. Such action involves developing in-house procedures and training employees to help them recognize unusual transactions. In addition, the data collected is stored securely within the company and in compliance with the RGPD (in Europe).

KYC: what rights do users have?

What about consumers concerned by the collection of their KYC data? Consumers have a range of rights, the most important of which is the right to be informed about the processing of their personal information, via a privacy policy for example.

To avoid any difficulties, it is important to present this privacy policy as early as possible in the relationship with the user, making it visible and easily accessible online and during the customer registration process. The latter can also access it at any time without difficulty. In addition to the right to be informed of the data collected, users have the right to access and rectify the data stored by the company. By discovering all the features of Qashflo, you can boost your growth on marketplaces while complying with legal and regulatory KYC and KYB requirements.

I activate payment of my marketplaces sales on D+1