How can regulated firms protect themselves from rising financial crime?

Martin Cheek, managing director of SmartSearch, explores the company's recent research which found that 42% of regulated firms have seen an increase in financial crime attempts. He says the results make it clear that firms must ensure they have correct measures in place, and that their compliance checks are resilient.

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Martin Cheek | SmartSearch
14th March 2024
SmartSearch - Martin Cheek
"For those firms that have already been a victim, there is no question that this has to be their number one priority."

Regulated firms within key sectors such as finance, legal, accountancy and property are often referred to as gatekeepers. It is because of the critical role they all play in protecting the UK’s entire financial system. As a result, they regularly find themselves on the frontline in the battle against rising financial crime, with more criminals looking to exploit weaknesses to legitimise illicit funds and launder money.

How much? Well the National Crime Agency estimates that as much as £90 billion is laundered through the UK.

Such is the responsibility facing these gatekeeper organisations, they must use every means possible to ensure their compliance processes are robust. A digital compliance strategy, utilising tools such as electronic verification (EV) is an essential part of the armoury in this fight, with the 2020 Money Laundering and Terrorist Financing Act recommending EV as an important safeguard.

The threat level is worrying high. We recently ran a survey of over 500 compliance decision-makers across the legal, property, finance and accountancy sectors who take on new individual and business clients.

The survey revealed that 42% of regulated firms reported an increase in financial crime attempts. Even more alarming is that just over a quarter (26%) of firms have been a victim of financial crime in just the last six months. This is more than double the number in the 2022 survey (12%). The number of property firms (29%) increased almost five times compared to the 2022 data, while finance firms more than doubled to a third (14% in 2022).

When it came to financial crime attempts, the biggest pressures were found in both the legal and property sectors. At 48%, nearly half of legal professionals, solicitors and conveyancers reported a rise – the highest percentage of firms in any of the sectors. Meanwhile, estate agents and the property sector saw the biggest increase in firms, rising to 37% from just 17% in the 2022 survey.

Although firms in the finance sector reported a decrease (54% in 2022), 41% of firms still saw a rise in financial crime attempts, with a similar number of accountancy firms (42%) sharing the same experience.

Against this backdrop of rising threats, it is abundantly clear that regulated firms must ensure they have correct measures in place, and that their compliance checks are resilient. For those firms that have already been a victim, there is no question that this has to be their number one priority.

Forward-thinking firms are already implementing a digital compliance strategy, combining the latest technology with real-time data and intelligence to complete essential checks, weed out bad actors and identify potential red flags. Ultimately, this helps safeguard the business from any potential threats, all while avoiding regulatory action, resource-draining investigations and eye-watering fines.

By adopting these measures, these busy gatekeepers also find that these once onerous compliance tasks now just become a seamless part of client onboarding and ongoing monitoring. Rather than a nuisance or a hardship, compliance can start to feel like a competitive advantage, providing a frictionless onboarding experience for clients.

Using EV as part of digital compliance software such as SmartSearch or integrated into an existing system via API means thousands of in-depth checks can be completed in seconds. This includes detailed individual and business verification checks, robust sanction and politically-exposed-person (PEP) screening and vital source of funds checks.

Of course, checks at onboarding is only half the battle. Firms must have access to the latest intelligence to stay alert to potential threats from within their own customer base. Given the remits of these gatekeeper organisations and the UK’s ever-growing sanction regime, firms cannot neglect important checks on existing clients. SmartSearch, for example, utilises real-time data from hundreds of sources and will automatically trigger enhanced due diligence if it finds a red flag - without manual intervention.

As criminals become increasingly sophisticated and financial crime only looks set to rise, the stakes are high for regulated firms. If this concerning trend is to be checked, a digital compliance strategy and tools such as EV must be fully deployed in the fight.

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