KYC / KYB requirements from a regulatory perspective
KYC/KYB is a series of processes and procedures designed to verify the identity of a platform’s users before granting them full access to the service. The requirements vary depending on the nature of the business activity, the regulatory jurisdiction, and the platform’s internal policies.
What does the law say ?
The Banque de France, through its Prudential Supervision and Resolution Authority (ACPR), imposes several guidelines regarding the identification, identity verification, and knowledge of users of a platform. Furthermore, in accordance with Article R. 561-38 of the French Monetary and Financial Code (CMF), any organization providing financial services must have the tools, material, and human resources to effectively implement the due diligence obligations required for identification and verification within the context of business relationships.
This regulatory provision imposed by the legislator aims primarily to prevent any fraudulent activity, money laundering and terrorist financing (LCB-FT) and is based on several national and European directives (transposition of revised EU Directive 2015/849, decree of January 6, 2021, decisions of the Sanctions Commission, etc.). The verification procedure includes in particular :
- Developments regarding identity verification measures
- New obligations relating to the beneficial owner
- Changes to the beneficial ownership registers
Whether through a Payment Service Provider or a PSP license, a platform is able to provide payment services to its users (payment accounts, payment methods and facilities, etc.). It is therefore required to comply with the regulator’s requirements by verifying the identity of each of its participants.
What are the risks in the event of non-compliance?
In addition to a wide range of financial (fraud, money laundering, etc.) and reputational (satisfaction, trust, etc.) risks, any failure to comply with regulatory requirements exposes the platform to non-compliance risks, which can lead to severe fines from the regulator. These may thus be subject to in-depth investigations, resulting in legal, administrative, and operational costs.
Any failure to comply with KYC/KYB requirements can jeopardize the platform’s profitability and long-term viability, jeopardizing its reputation and ability to attract new users.
KYC/KYB procedure : operational implementation
To ensure compliance and effectiveness, a platform must carefully implement its KYC/KYB procedure. This requires the involvement of partners, the integration of tools, and the implementation of strict internal procedures.
What is the role of the Payment Service Provider ?
Validation of the KYC/KYB procedure attests to the reliability of the new platform participant and thus authorizes them to start their business (sale of goods or services, crowdfunding project, etc.). Completing this step leads to the creation of a merchant account, where the funds collected will be deposited. Legally opened by the institution in charge of the platform’s marketplace payment activities, this account is of course subject to numerous technical, security, and compliance requirements. This is why the platform administrator and the Payment Service Provider work together to ensure the consistency and security of the KYC/KYB process.
How does the KYC / KYB procedure work ?
While the KYC/KYB procedure can sometimes seem complex to online platform administrators, it is largely simplified by the PSP in charge, taking care of many steps.
Collection of legal documents
This initial phase, generally automated by an online portal provided by the payment service provider, aims to obtain precise information about the new user of the platform (last name, first name, nationality, country of residence, etc.). The latter must then submit all the documents necessary to verify their identity and/or their company. The nature of the documents requested varies depending on the type of activity of the platform and the user’s profile.
KYB – For professionals (non-exhaustive list) :
- Extract from KBIS less than 3 months old
- Company statutes
- Company share allocation document
- Identity document of the legal representative and shareholders holding at least 25% of the shares
- Company RIB
KYC – For individuals (non-exhaustive list) :
- Identity document (ID, passport, etc.)
- Proof of address
- Tax notice
In-depth risk analysis
This step involves verifying the veracity of previously collected documents and analyzing them against predefined criteria. The goal is to determine the risk level of each user. This analysis can be performed manually by the PSP’s compliance team or semi-automated using fraud detection tools based on algorithms and predictive models.
Final decision
The previous analysis results in the approval or rejection of the new user, determining whether or not to open a payment account. This decision, generally documented and justified, is crucial to ensuring regulatory compliance and the platform’s security.
What are the best practices to implement ?
In order to ensure the effectiveness and compliance of the participant identity verification process, a platform must ensure the implementation of certain elements :
- Periodic re-verification of active users to ensure their activity is still compliant
- Regular training of teams responsible for analyzing parts and making decisions
- Regular review of internal procedures and operational documentation provided to ensure consistency and traceability of the process
- Continuous monitoring of regulations and AML-CFT to ensure compliance of processes with KYC / KYB standards
What future for KYC / KYB ?
As the regulatory, technological, and business landscape continues to evolve, it is imperative for platform administrators to take a proactive approach to optimizing and evolving KYC/KYB.
Firstly, as it is continually shaped by national and European regulatory developments, a regular review of processes is essential in order to adapt to the regulator’s expectations. This involves a periodic reassessment of the operational procedures defined internally and its documentation, in order to guarantee the relevance, compliance and efficiency of its operation.
The use of new technological practices (recognition, artificial intelligence, etc.) can also enable platforms to strengthen the security and performance of their KYC / KYB processes, while reducing friction when onboarding new participants. By adopting an approach focused on innovation and adaptation, administrators can position themselves on the challenges of automating predictive risk assessment and personalization processes.
Finally, cross-platform collaboration could play a key role in combating fraud and money laundering, by allowing platforms to exchange information on their users’ activities, in accordance with data protection obligations.
