"Regulated firms start to buckle under the weight of compliance"
Over eight in 10 regulated firms, including those in the property industry, are considering a switch to electronic verification (EV) of their customers, according to the results of a new survey by AML software provider SmartSearch.
More than 90% of firms in the financing and banking sector are considering the switch, with two-thirds of them “actively” doing so.
However, almost a quarter, or 23%, of all the firms persisted with the misconception that using hard-copy documents was more reliable than electronic checks.
Around 40% of property firms also said they would not consider switching to EV, with more than one in 10, or 12.5%, saying they do not trust the technology.
“In a digital age, it’s disconcerting to see that some of the firms on the frontline in the fight against money laundering still don’t trust the technology of electronic verification over manual processes around hard copy documents,” Martin Cheek (pictured), managing director at SmartSearch, commented. “In fact, using EV is by far the most reliable way to carry out ‘know your customer and know your business’ checks on new clients.”
The survey of decision-makers in 500 regulated UK businesses in the legal, property, and banking and finance sectors was conducted as part of SmartSearch’s Electronic Verification Uncovered campaign, which encourages regulated businesses to use digital onboarding in identifying and screening their clients.
SmartSearch noted that firms are starting to feel the growing weight of compliance around anti-money laundering and sanctions regulations amid a sharp increase in the number of companies fined by regulators for breaches of the rules.
The most recent figures from HMRC show that 85 firms were fined last year for breaches of compliance regulations. A freedom of information request also revealed a sixfold increase in the number of legal firms fined by the Solicitor’s Regulation Authority since 2017. The Financial Conduct Authority recorded financial penalties totalling an eye-watering £568 million for firms in the financial sector in 2021.
“As criminals produce ever-more sophisticated fraudulent versions of documents like passports and driving licences, EV can also verify official documentation quickly and reliably,” Cheek said. “EV also makes the firms’ own customer journeys more efficient and cost-effective. In short, as regulated firms start to buckle under the weight of compliance, investment in EV is a no-brainer.”
SmartSearch added that even the 2020 Money Laundering and Terrorist Finance Act recommends that regulated firms use EV in order to make their due diligence as effective as possible.