Guide · Counterparty due diligence

Know your counterparty: the complete guide to counterparty due diligence.

Know your counterparty means establishing who a business partner really is before you commit to it: the legal entity, the people who own and control it, the risks they carry and the evidence behind your decision. Counterparty due diligence is the process that produces that knowledge, and keeping it current is what turns a one-off check into a defensible programme.

LAST UPDATED OCT 2026 · GENERAL GUIDANCE, NOT LEGAL ADVICE

What counterparty due diligence is

Counterparty due diligence is the set of checks you run on a company before you trade with it, finance it, buy from it or sell to it. It differs from customer due diligence in object rather than principle: the counterparty is usually a company, not a person, so the work is about registration, ownership, control and the people behind the name.

The output is a file, not a feeling. A good counterparty file lets someone who was not in the room understand who the counterparty is, what was checked, what was found and who decided to proceed.

Why it matters: four kinds of exposure

Sanctions exposure. Dealing with a sanctioned party, or a company it owns, is a breach regardless of intent, and the exposure usually sits in the ownership chain rather than on the contract.

Financial crime. Trade and payment flows are a classic channel for money laundering, and regulated firms must show that they assessed the risk.

Fraud and non-performance. A counterparty that is not what it claims to be can disappear with a prepayment or a cargo.

Banking and reputation. Banks and financing partners increasingly ask who you trade with, and a weak answer costs you facilities long before it costs you a fine.

Who needs to know their counterparties

Regulated firms are required to under anti-money laundering law: banks, brokers, asset managers, payment firms and designated non-financial businesses such as real estate agents, dealers in precious metals and stones, and corporate service providers. Everyone else is bound by sanctions law, which applies to every business, and by the expectations of the banks that move their money.

Some rules now reach further. In the UAE, VAT-registered businesses have to verify their suppliers from 1 October 2026; our explainer on FTA Decision No. 13 covers the detail.

What a counterparty file contains

Whatever the industry, a complete file answers the same seven questions. The counterparty due diligence checklist turns them into ten working steps.

Who is the legal entity?

Legal name, registration number, jurisdiction and registered address, taken from the registry or the registration documents, not from an email signature or a website.

Who owns it?

The ownership chain through every holding layer to the ultimate beneficial owners, with the percentages and the documents that evidence them.

Who controls it?

Directors, senior managers and anyone whose control the shareholding does not show, such as a nominee arrangement or a power of attorney.

Is anyone in the chain sanctioned, politically exposed or in the news?

Sanctions, PEP and adverse media screening on the entity and on every person and company found in the two previous steps.

Does the business make sense?

Whether the counterparty's activity, size and geography fit the deal it is proposing. A newly formed trading company offering large volumes deserves questions.

How risky is the relationship?

A risk rating that decides whether standard checks are enough or enhanced due diligence is needed.

Who decided, and on what?

The approval, the approver and the evidence they relied on, recorded at the time rather than reconstructed later.

Standard and enhanced due diligence

Not every counterparty deserves the same depth. A risk-based approach sets standard checks for the many and enhanced due diligence for the few that trigger it. Common triggers include:

Ownership that runs through several jurisdictions, trusts or nominee shareholders

A politically exposed person among the owners or directors

Links to high-risk or sanctioned jurisdictions, or to sectors with known diversion risk

Adverse media that is credible and relevant to financial crime

Activity that does not fit the company's profile, size or history

Enhanced due diligence means more evidence, not just more forms: source of funds and wealth where relevant, independent confirmation of ownership, a closer look at the people involved, and sign-off by someone senior.

Screening: sanctions, PEP and adverse media

Screening checks names against the lists that create legal obligations and the sources that signal risk. Sanctions lists, such as the OFAC SDN list, the EU consolidated list, the UK sanctions list and the UN Security Council list, create hard prohibitions. PEP lists identify people whose public role raises corruption risk and calls for enhanced checks. Adverse media catches what the lists have not caught up with yet.

Two details separate real screening from box-ticking. The first is ownership: under the US 50 percent rule, a company owned 50 percent or more by sanctioned persons is treated as sanctioned even if it is not listed, and the EU and UK apply their own ownership and control tests. The second is evidence: a clear result is only defensible if you can show which lists were checked, when, and why a near match was dismissed. See how KYCK runs sanctions, PEP and adverse media screening.

When the counterparty comes with a ship

In shipping and commodity trade, the company you sign with is only part of the exposure. The vessel carrying the cargo can be designated in its own right, identified by its IMO number, and the companies that own, manage and insure it carry sanctions risk of their own. A vessel check screens the hull and that whole chain together; our page on vessel screening walks through it step by step.

Keeping the file current

A counterparty file is accurate on the day it is completed and starts ageing the next morning. Owners sell, directors change, licences expire and lists are updated daily. Keeping the file current means re-screening when the lists change, reacting when ownership or control changes, and refreshing documents on a cycle set by risk: more often for high-risk counterparties, less often for low-risk ones.

The aim is not to re-onboard everyone every year, but to know which counterparties have changed. Our article on why counterparty risk is a cycle goes further.

Evidence and approval

Regulators, auditors and banks do not ask whether you checked a counterparty. They ask you to show when, against what, and who decided. That means approvals recorded in the file rather than in an email thread, with the approver, the time and the reasoning, and with the person who prepares a file kept separate from the person who approves it. We covered both in who signed off on your last counterparty and show me your decision.

Five mistakes that weaken a counterparty file

Stopping at the signatory. The person who signs the contract is often not the person who owns or controls the company.

Trusting the PDF. A trade licence or certificate proves what it says only if it matches the registry and is still current.

Screening the company but not its owners. Most sanctions exposure sits one or two layers up.

Checking once. A clean result from last year says nothing about this year.

Approving over email. A decision you cannot reconstruct is a decision you cannot defend.

How KYCK runs counterparty due diligence

KYCK runs the whole file as one flow. You send an invite, the counterparty completes a KYB questionnaire built from your template and uploads its documents in a branded portal, and KYCK extracts the data from them. Ownership is mapped to the beneficial owners, the company and every person found are screened for sanctions, PEP and adverse media, vessels are checked where cargo moves by sea, and the file routes through your approval tiers with every step timestamped. See counterparty onboarding and KYB software for the detail.

Frequently asked questions

What is know your counterparty?

Know your counterparty is the principle of establishing who a business partner really is, who owns and controls it and what risks it carries before you commit to a transaction or relationship. Counterparty due diligence is the process that puts it into practice.

Is counterparty due diligence a legal requirement?

For regulated firms, yes: anti-money laundering laws require due diligence on business relationships, including corporate customers and their beneficial owners. For other businesses the requirement comes from sanctions law, which applies to everyone, and from banks and partners who ask for evidence.

How long does counterparty due diligence take?

For a straightforward company with clear documents, the checks themselves are quick with the right tools; most of the elapsed time is spent waiting for the counterparty to provide its documents. Complex ownership or enhanced due diligence can take days, because evidence has to be gathered and reviewed.

How often should counterparties be reviewed?

On a cycle set by risk, for example annually for high-risk counterparties and every two or three years for low-risk ones, plus whenever ownership, control or the sanctions lists change. Your policy should state both the cycle and the triggers.

What is the difference between counterparty due diligence and KYB?

KYB is the verification of a business: its registration, its ownership and its people. Counterparty due diligence uses KYB as its core and adds the deal context: the transaction, any vessels and goods involved, the risk rating, the approval and the ongoing monitoring of the relationship.

See a counterparty file built end to end.

Bring a counterparty you are onboarding to the demo, and keep the evidence file.

Book a Demo

This guide is general information as of October 2026, not legal advice. Rules differ by jurisdiction and change over time: confirm what applies to you with your supervisor or legal adviser before relying on it.