More than half of emerging finance firms lack new business verification checks
More than half of firms in emerging finance sectors do not always check who is running the businesses they take on as new clients, new survey data can reveal.
Almost one-in-three respondents (28%) said they often carry out verification checks, 21% of firms only did so sometimes, while 9% say they rarely identify the owners and directors of the business, for example.
The worrying findings are revealed in a comprehensive new survey of 500 compliance decision-makers in banks, challenger banks, crypto platforms, property developers and gaming outlets by SmartSearch, the leading UK provider of digital compliance solutions.
It comes almost one-year on from the launch of the Register of Overseas Entities, which identified thousands of UK properties owned by offshore shell companies with complex corporate structures and anonymous ownership. All firms across financial services have a responsibility under the UK’s anti-money laundering (AML) regulations to determine the ultimate beneficial owner (UBO) of any business they have dealings with.
Without such checks, firms are unable to identify the true ownership of assets or the true origins of funds, leaving firms open to potential sanctions and AML breaches.
Among the worst offenders were banks, with nearly two thirds admitting they don’t always verify the identity of people running the businesses they take on as new customers. Worryingly, high street banks performed worse than challenger banks, with 70% stating they do not carry out such checks, compared to just over half of challenger banks (56%).
Meanwhile, two thirds of crypto firms, more than half of property developers and half of casinos all revealed that they are leaving themselves open to potential sanctions and AML breaches with a lack of verification checks.
Martin Cheek, managing director of SmartSearch said: “Firms across financial services have long been seen as the gatekeepers of the UK’s financial system. Without these fundamental verification checks, it’s impossible to not only fulfil this responsibility, but to protect their businesses from illicit funds and financial crime.
“While Know Your Customer (KYC) checks are a well-established part of compliance, Know Your Business (KYB) is just as critical, enabling firms to assess the risk posed by new business customers. This includes identifying beneficial owners and the true source of funds, screening for sanctions or politically exposed persons (PEPs), and verifying the company’s existence. This onerous task has been made much simpler through innovations in digital compliance, allowing firms to access real-time information and complete detailed checks in minutes.”
The survey is the third in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification. The campaign argues that businesses should use digital compliance to ensure they properly identify and screen clients – as recommended by the government in the 2020 Money Laundering and Terrorist Finance Act – to stem the flow of dirty money into the UK and protect firms from the fines and reputational damage which come with breaches.
SmartSearch recently launched its next-generation platform, continuing a more than decade-long journey to support regulated firms with their anti-money laundering (AML) compliance. Its digital solution is trusted by more than 6,000 clients and 55,000 users. In addition to more than 2,000 financial services firms and over 1,000 property firms, this includes one in two of the top 100 accountancy firms and one in three of the top 200 legal firms.
The research was conducted by Censuswide with 500 compliance decision-makers, aged 18+, who are in crypto (exchanges, OTC traders), gaming (casinos, online betting platforms, high-street betting shops), property development and banks (including challenger banks) between May 26 and July 2, 2023. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles, and are members of The British Polling Council.