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KYT vs. KYB vs. KYC: What Each Means for Crypto Compliance

May 15 2025

In the evolving landscape of crypto compliance, three core pillars—KYT (Know Your Transaction), KYB (Know Your Business), and KYC (Know Your Customer)—form the foundation of robust Anti-Money Laundering (AML) frameworks for Virtual Asset Service Providers (VASPs) and financial institutions. Each plays a distinct but complementary role: KYC focuses on verifying the identity of individual customers, ensuring financial institutions understand who they are doing business with. KYB extends this due diligence to business entities, uncovering beneficial ownership, legal structure, and financial history to prevent front companies or shell entities from engaging in illicit activity. KYT monitors ongoing transactions in real-time to detect unusual behavior or suspicious activity that could signal money laundering, terrorist financing, or other financial crimes. The article explores how these processes work together to meet regulatory expectations, including those set by the Financial Crimes Enforcement Network (FinCEN), Financial Industry Regulatory Authority (FINRA), and global standards like those of the Financial Action Task Force (FATF). It also highlights best practices for implementation, such as enhanced due diligence for high-risk accounts, customer identification programs, and leveraging advanced compliance software for transaction monitoring. Ultimately, integrating KYT, KYB, and KYC is not only essential for regulatory compliance—it’s critical for building trust, managing risk, and securing the integrity of the financial ecosystem in the crypto industry.

In the rapidly evolving crypto ecosystem, compliance frameworks like KYC (Know Your Customer), KYB (Know Your Business), and KYT (Know Your Transaction) play a vital role in ensuring transparency, mitigating risk, and combating financial crime. These frameworks also ensure better stability in the financial system by maintaining robust compliance measures. Additionally, these compliance measures enhance the overall performance of financial institutions by optimizing their operational standards.

This blog post unpacks the definitions, differences, and applications of KYC, KYB, and KYT in the context of crypto compliance, and how they work together to maintain the integrity of the financial system.

Table of Contents

Introduction to Crypto Compliance

The cryptocurrency industry has experienced significant growth in recent years, and with this growth comes the need for effective compliance measures to prevent financial crimes such as money laundering and terrorism financing. Crypto compliance refers to the set of regulations and guidelines that cryptocurrency businesses, including exchanges and wallet providers, must follow to ensure they are operating in a legally compliant manner. One of the key components of crypto compliance is the Know Your Customer (KYC) process, which involves verifying the identity of customers and assessing their risk profile. This process is crucial in preventing illicit activities, such as money laundering, and ensuring that cryptocurrency businesses are not used as a conduit for financial crimes.

What is KYC (Know Your Customer)?

Know Your Customer (KYC) refers to the process financial institutions and crypto businesses use to verify the identity of their clients. It is one of the fundamental components of the customer identification program (CIP) and is required under anti-money laundering (AML) regulations enforced by bodies such as the Financial Crimes Enforcement Network (FinCEN) and the Financial Industry Regulatory Authority (FINRA).

KYC Includes:

  • Collecting the four pieces of identifying information (e.g., name, date of birth, address, identification number) required during the Customer Identification Program (CIP)

  • Verifying this information using official documents (e.g., passport, driver’s license)

  • Assessing the risk associated with the customer

  • Monitoring customer activity through ongoing monitoring

These steps ensure that customer relationships are established based on reasonable diligence, preventing identity fraud, terrorism financing, and money laundering.

KYC Documents Typically Include:

  • Government-issued ID

  • Proof of address

  • Selfie for biometric verification

Verifying a client's identity through these documents is essential to ensure compliance with KYC regulations.

In crypto, KYC compliance is critical for exchanges, wallet providers, and DeFi platforms offering access to financial transactions or custodial services.

Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is a critical component of the KYC process. It involves collecting and verifying customer information, including identification documents and proof of address, to assess the customer’s risk profile. CDD is essential in identifying potential risks associated with a customer’s account, such as suspicious transaction activity or high-risk business relationships. Financial institutions and cryptocurrency businesses must conduct CDD on all customers to ensure compliance with KYC regulations and to prevent financial crimes. The Financial Industry Regulatory Authority (FINRA) and the Financial Crimes Enforcement Network (FinCEN) provide guidelines for CDD, which include verifying a customer’s identity, assessing their risk profile, and monitoring their transactions.

Enhanced Due Diligence

Enhanced Due Diligence (EDD) is a more thorough and rigorous process than CDD. It is typically required for high-risk customers, such as those involved in international transactions or those with a history of suspicious activity. EDD involves collecting additional information about the customer, including their business activities, financial history, and relationships with other individuals or entities. This information is used to assess the customer’s risk profile and to identify potential risks associated with their account. EDD is essential in preventing financial crimes, such as money laundering and terrorism financing, and in ensuring that cryptocurrency businesses are not used as a conduit for illicit activities.

What is KYB (Know Your Business)?

Know Your Business (KYB) is the corporate equivalent of KYC. It focuses on verifying the legitimacy of companies that are clients or counterparties.

It is crucial for financial institutions to develop KYB strategies to ensure compliance with regulatory standards.

KYB Involves:

  • Verifying business registration documents

  • Identifying beneficial owners of the company

  • Performing enhanced due diligence on high-risk entities

  • Understanding the nature of the business relationship

KYB compliance is required to prevent shell companies or fronts for illicit activity from entering the financial system. It also ensures that companies have undergone rigorous testing from a due diligence and risk assessment standpoint.

For crypto businesses providing services to other organizations (e.g., payment gateways, OTC desks), KYB ensures that all B2B relationships are lawful and low-risk, thanks to developed KYB processes ensuring compliance.

What is KYT (Know Your Transaction)?

Know Your Transaction (KYT) takes compliance a step further by applying real-time monitoring to financial activity, including the monitoring of accounts for suspicious activity.

KYT Includes:

  • Tracking transactions for suspicious activity

  • Flagging anomalies such as high-frequency trades, large amounts, or unusual geographies

  • Evaluating behavior based on transaction history

  • Connecting transaction patterns to the customer's identity

KYT ensures that each transaction activity aligns with what is expected based on the customer profile. This is particularly crucial for crypto platforms that deal with high-volume or cross-border transactions where terrorism financing or money laundering risks are elevated.

How KYC, KYB, and KYT Work Together

Each of these compliance pillars addresses a different aspect of due diligence:

  • KYC ensures the customer is who they say they are

  • KYB validates the legitimacy of business entities

  • KYT monitors transactions to detect potential criminal activity

Together, they allow financial institutions, crypto businesses, and regulators to:

  • Identify and verify customers and partners

  • Monitor behavior in real-time

  • File suspicious transaction reports when necessary

  • Prevent fraudulent activity and maintain security across the financial system

  • Ensure the suitability of clients and transactions, aligning recommendations with the financial situation and needs of the customers

This trifecta forms the core of a risk-based approach that is increasingly being adopted by banks, brokers, and crypto exchanges alike.

Compliance Technology and Tools

Modern compliance tools leverage fluid dynamic software, machine learning, and blockchain analytics to integrate KYC, KYB, and KYT seamlessly. These systems ensure:

  • Fast identity verification (KYC)

  • Automated onboarding and document analysis (KYB)

  • Real-time anomaly detection (KYT)

These tools have undergone rigorous testing in diverse environments, including wind tunnel simulations, ensuring they meet regulatory guidelines and industry standards.

The Crypto Industry and Regulatory Pressure

The crypto industry faces increasing pressure from regulators to implement stronger compliance frameworks. Key expectations include:

  • Detailed customer onboarding

  • Ongoing monitoring and enhanced due diligence

  • Reporting of suspicious activity in a timely manner

  • Understanding customers' profiles and financial situations, including their existing securities and investments, to ensure ethical and compliant recommendations

By implementing KYC, KYB, and KYT, crypto firms can not only achieve compliance but also gain customer trust, reduce fraud, and enable safer market participation.

Crypto Compliance Challenges

Cryptocurrency businesses face several challenges in implementing effective compliance measures, including the need to balance regulatory requirements with business needs. One of the main challenges is the lack of clear guidelines and regulations, which can make it difficult for businesses to determine what is required of them. Additionally, the cryptocurrency industry is constantly evolving, with new technologies and business models emerging all the time. This can make it challenging for businesses to keep up with the latest developments and to ensure that their compliance measures are effective. Furthermore, the use of new technologies, such as blockchain and artificial intelligence, can create new risks and challenges that must be addressed.

Best Practices for Compliance

To ensure effective compliance, cryptocurrency businesses should implement best practices, such as conducting thorough CDD and EDD, monitoring transactions, and reporting suspicious activity. Businesses should also ensure that they have adequate policies and procedures in place to prevent financial crimes, such as money laundering and terrorism financing. Additionally, businesses should provide training to employees on compliance requirements and ensure that they have the necessary resources and expertise to implement effective compliance measures. The use of technology, such as fluid dynamic software and tri fiber composite, can also help to improve compliance by providing real-time monitoring and analysis of transactions. By following these best practices, cryptocurrency businesses can help to prevent financial crimes and ensure that they are operating in a legally compliant manner. Ongoing monitoring and review of compliance measures are also essential to ensure that they remain effective and up-to-date.

Conclusion

Understanding and integrating KYC, KYB, and KYT into your compliance strategy is no longer optional. These processes are essential for:

  • Preventing fraud, money laundering, and identity theft

  • Complying with the Bank Secrecy Act and global AML regulations

  • Protecting your platform from legal and reputational risks

  • Conducting enhanced due diligence on high-risk clients, ensuring that certain clients, due to their riskiness, are subject to a more thorough level of scrutiny

Crypto businesses that align their systems with these protocols will not only safeguard their operations but also contribute to the stability and trust of the broader financial ecosystem.

For best results, partner with compliance providers that specialize in end-to-end onboarding, monitoring, and reporting solutions—helping you manage customer identity, business verification, and transaction tracking from a single platform.

For more information about how we can help reach out to us. We're here to help and answer any questions you may have.

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