If you work with other businesses in Mexico, you may be required to implement KYB verification. This guide will help you navigate these complex regulatory requirements, understand the biggest challenges, and learn how automation can help streamline the process.

Recap - what is KYB?

KYB, or "Know Your Business," is a regulatory requirement that mandates businesses to verify other businesses. This process ensures that these businesses and their owners are legitimate and not involved in financial crimes such as money laundering or terrorist financing.

An adequate compliance program that enforces Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) includes all of the following:

1. Customer Identification Program (CIP), which includes Know Your Business (KYB)
2. Customer Due Diligence (CDD), including enhanced due diligence for high-risk customers (EDD) and ongoing due diligence (ODD)
3. Activity Monitoring, which involves real-time tracking of the customer's day-to-day financial transactions for any unusual or suspicious patterns

Who’s responsible for regulating KYB?

In Mexico, the primary authorities responsible for regulating both financial and non-financial institutions in matters related to AML/CTF are:

1. Secretaría de Hacienda y Crédito Público (SHCP) through the Comisión Nacional Bancaria y de Valores (CNBV)
2. Banco de México (BANXICO)

These authorities collaborate with other supervisory bodies—such as the Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (CONDUSEF), the Unidad de Inteligencia Financiera (UIF), and the Servicio de Administración Tributaria (SAT)—to issue regulatory guidelines related to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF).
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Who needs to conduct KYB?

KYB processes are regulated through the "Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita" (Federal Law for the Prevention and Identification of Transactions with Illicit Proceeds), also known as the Anti-Money Laundering Law. In essence, any business that transfers funds to another business must conduct KYB. Articles 3 and 17 of the aforementioned law specifically state that this requirement applies to, but is not limited to, the following:

Financial Institutions

1. Banks
2. Credit Institutions
3. Brokerage firms
4. Insurance companies
5. Investment funds
6. Savings and loan cooperatives
7. Fintech institutions

Non-financial businesses

1. Real estate companies
2. Jewelry and precious metals businesses
3. Art and antiques dealers
4. Vehicle dealerships or distributors
5. Gambling and lottery companies
6. Mutual and credit service businesses (outside the regulated financial sector)
7. Professional services such as lawyers, accountants, and notaries
8. Armored vehicle providers
9. Custody and transfer services companies

Other regulated activities

1. Virtual asset businesses
2. Non-profit organizations
3. Customs brokers

What are the risks of non-compliance with KYB regulations?

1. Fines: The CNBV imposes hefty fines on businesses of all sizes for KYB non-compliance. These penalties can range from thousands to millions of US dollars.
2. Reputational damage: If your business is found supporting entities involved in financial crimes or fraud, customers may lose trust in your brand and turn to competitors.‍
3. Increased fraud: Lack of verification can lead to risks with fraudulent businesses, directly impacting your bottom line.

How to conduct KYB to ensure proper compliance?

In accordance with Mexican AML regulations, relevant institutions must meet the following primary requirements:

1. Verify business identities using official legal documents.
2. Confirm businesses' occupations and activities through their documents.
3. Identify legal representatives and Ultimate Beneficial Owners (UBOs), and obtain documentation to verify their identities.
4. Securely store documents related to each business's identity and activity for five years.
5. Submit monthly, quarterly, and annual compliance reports to regulators and government agencies.
6. Permit government inspections to verify compliance with regulatory obligations.

To meet these requirements, businesses must collect and analyze several documents from each entity being verified. These documents include:

1. Articles of Incorporation (Acta Constitutiva) and subsequent updates (Actas Asamblea): These establish the company's existence and outline its structure, including information on shareholders and the board of directors.
2. Power of Attorney (Poder Notarial): This document grants authority to the company's legal representative(s) to act on its behalf.
3. Identification Documents of Legal Representatives: Valid government-issued identification for individuals with legal authority to act for the company.
4. Constancia de Situación Fiscal: A certificate from the SAT verifying the company's tax status and obligations.
5. Proof of Address: Recent bank statements or utility bills confirming the company's legal address.
6. Business Licenses: When applicable, documents proving the company's legal right to operate in its specific industry.

Furthermore, they screen the business's online presence to verify the provided information matches its public operations.
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The challenges

1. Document collection is challenging and can lead to weeks of back-and-forth with businesses to gather the correct documents. Over 50% of businesses initially submit incorrect documents. These businesses are then chased via WhatsApp or email for weeks, often to submit another incorrect document. More than half drop off due to this high-friction process. This back-and-forth is a significant time drain for customers, operations and sales teams.
2. Approval times are slow. Documents are manually processed, which can take days or weeks to approve a business for KYB—especially when there are requests for information (RFIs). This creates a poor experience for the business being verified and increases the risk of losing them to competitors.
3. Existing processes are hard to scale. Scaling go-to-market requires growing operations and compliance teams. These analysts must be hired and trained on a complex process, delaying growth by 6–9 months.
4. Fraud rates remain high. Businesses frequently submit falsified or forged documents, making it challenging to detect discrepancies with manual inspection.‍
5. Verification is an ongoing process. Businesses require continuous monitoring after onboarding, necessitating financial institutions to repeat all these tedious processes monthly.

Master KYB in Mexico with Niva

1. Eliminate back-and-forth with customers to collect the correct documents. Niva's real-time document validation slashes invalid document submissions by up to 90%, supercharging the efficiency of your sales and ops teams.
2. Approve your customers within minutes, providing an A+ onboarding experience that helps secure more customers and outcompete competition.
3. Compliance and operations teams are no longer bottlenecks. Our platform seamlessly scales to accommodate your onboarding volumes.
4. Reduce fraud. Our systems authenticate nearly all submitted documents against government sources to prevent tampering. Additionally, our platform scans the online presence of each business and its owners for potential fraud indicators.‍
5. No need to worry about monitoring. Niva's continuous KYB monitoring ensures ongoing compliance for each customer with minimal additional effort.

Interested in learning more? Sign up for a demo here.

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Special thanks to Juan Pablo Lopez for his deep regulatory insights in Mexico.

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