"Recent research by Transparency International found that since 2016, as much as £7 billion of suspect funds has been invested in UK property."
If news came out that a Border Force officer didn’t check the identity of every person coming into the country, the population would quite rightly be up in arms. After all, this would present a clear threat to our national security. Yet when it comes to regulated firms, who act as the gatekeepers of the UK’s financial sector, the majority have admitted to not always completing the same essential checks.
A SmartSearch survey found that a concerning seven out of 10 (70%) regulated firms across the legal, property, finance and accountancy sectors do not always verify the identity of customers, either manually or electronically, when taking on new customers.
Less than half (46%) of the regulated firms surveyed said they often complete verification checks, while one in five (21%) firms only check sometimes.
Given the fact that it is a clear requirement of all regulated firms to conduct proper identity checks for all customers, the answer to this question should be “always”. Without those critical checks – just like a Border Force officer – regulated firms are leaving themselves exposed to potential threats, such as serious financial crime. Plus, there’s the very real prospect of regulatory action and everything that comes with that, whether it’s hefty fines, extensive investigations and reputational damage.
Clear sector shortcomings
Delving into the data, none of the sectors exactly cover themselves in glory. Of all those surveyed, accountancy firms were most likely to always ask for proof of identity or to run a check, yet this was still only around a third of firms (33%). Financial services wasn’t too far behind this at 29%.
Despite the clear mandate from regulators for conveyancers and estate agents to complete identity checks on property buyers, three quarters (75%) of property firms and seven in 10 legal firms admitted that they do not always complete such checks. The biggest worry though is the firms that never verify a customer’s identity, with 3% of legal professionals and 1% of property firms making the disturbing admission.
The survey revealed several reasons why firms miss out this critical step. Respondents were either complacent about their regulatory requirements and the threat to their business, or they relied on others in the chain. Otherwise they misguidedly trusted their clients to have everything above board. But whether firms sense a potential threat or not, verifying people’s identities is still a necessary step for each customer interaction.
On the front line
Whether they want to admit it not, firms across these regulated sectors are very much on the frontline in the ongoing battle against money laundering and financial crime. And it truly is a battle that criminals seem to be winning, especially as these gatekeeper firms become an easy target by forgoing even the most fundamental checks on individual customers. In fact, the National Crime Agency (NCA) predicts as much as £90 billion is laundered through the UK.
Using property as an example, recent research by Transparency International found that since 2016, as much as £7 billion of suspect funds has been invested in UK property. In many cases, these purchasers may have had multiple touch points, perhaps with a broker, estate agent, a solicitor, a conveyancer or another key part in that chain.
Electronic verification
While it would certainly be an improvement from no checks at all, firms shouldn’t just photocopy a passport or ID and assume their work is done. That’s especially true given the prevalence and growing sophistication of falsified official documents. Considering the sheer size and scale of the challenge, many regulated firms have moved with the times and adopted a digital compliance approach. This is stipulated in the fifth money laundering directive as a more secure, robust and efficient process.
Platforms such as SmartSearch utilise electronic verification (EV) to verify a person’s identity and complete detailed customer checks in seconds. The platform’s ‘Individual Check’ for example generates six times as much information as one manual check of a passport or ID. A digital approach allows for the integration of multiple data sources into one platform, so firms get an accurate picture of the client with minimal input. This real-time intelligence is then particularly important in the ongoing monitoring and risk assessment of the client.
Those firms who make the switch to EV quickly learn that it is the most robust and efficient way to minimise the risk of a financial crime to their business, and to avoid breaching regulations around anti-money laundering (AML) and financial sanctions.
Moreover, the 2020 Money Laundering and Terrorist Finance Act recommends the use of EV to support firms’ due diligence measures and processes.
