Financial news

More than half of firms in banking, crypto, property development and gaming do not always check who is running the businesses they take on as new clients, digital compliance specialists SmartSearch has revealed.

Despite high regulatory scrutiny in the banking space, both high-street and challenger banks emerged as the worst offenders in the digital compliance firm’s report. Almost two-thirds of banks admitted they don’t always verify the identity of people running the businesses they take on as new customers.

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 these checks, firms are unable to identify the true origins of funds, leaving firms open to possible AML breaches.

Overall, high street banks performed worse than challenger banks, with 70 per cent stating they do not carry out such checks, compared to just over half of challenger banks (56 per cent).

The news comes one year on from August 2022, which saw the launch of the new Register of Overseas Entities, which has since identified thousands of UK properties owned by offshore shell companies with complex corporate structures and anonymous ownership.

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.

Innovations in digital compliance

Martin Cheek, managing director of SmartSearch, said: “Without these fundamental verification checks, it’s impossible to not only fulfil this responsibility, but also 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 and outdated methods of identity verification.

The SmartSearch 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. This move could help drastically reduce the flow of ‘dirty’ money into the UK and protect firms from fines and reputational damage.