"Some of the forged documents we see are so sophisticated that it requires very specialist technology combined with human intervention to spot they are fakes."
We spoke to Martin Cheek, managing director at SmartSearch, about why rising regulation is the biggest issue currently facing brokers and lenders, and how brokers can remain compliant post-GDPR.
FR: Tell us a bit about SmartSearch’s proposition and why having the correct anti-money laundering protections in place is so important.
We have created a multi award-winning product that provides a “one stop shop” for all regulated businesses’ Know Your Customer and Customer Due Diligence requirements. We have data partners in Experian, Equifax, Companies House and Dow Jones and can validate Individuals and Businesses both in the UK and Internationally. SmartSearch is alreadyused by more than 3,000 businesses, and this number is growing by around 50 every month.
The Money Laundering Regulations dictate a risk-based approach which is embraced by SmartSearch, and getting this right is really the key for regulated firms. The SmartSearch platform allows firms to tailor how much validation they take on either an individual or a business. Some firms using electronic verification are also using the platform to validate documents or belt and bracing by combining electronic and documents where the risk is the highest.
Having the right Know Your Customer solutions in place is key to getting the whole process correct, as this is where it all starts. Fully understanding who your customers are and what they do will ultimately enable you to understand what the risks are and then they can be managed accordingly.
FR: What are the biggest issues facing both brokers and lenders in the current economic environment?
We think that rising regulation is the biggest issue facing brokers and lenders in the current economic environment. We see this trend continuing and this is certainly the case with Money Laundering legislation. We have just witnessed the latest Money Laundering Regulations which were rushed through Parliament in June 2017 and we now have the 5th Money Laundering Directive approved by the European Parliament which will come into force within the next 18 months.
The increase in regulation is a particular issue for smaller businesses that struggle to find the necessary resources to put all the appropriate systems and procedures in place.
FR: With a rise in identity fraud and the introduction of GDPR, what steps should brokers be taking to ensure they remain compliant?
Identity fraud and identity theft are massive problems for the industry; just look at recent cases like Dreamvar and Mishcon and P&P and Owen White & Catlin. Almost all mortgage fraud is perpetrated using forged documents such as passports, driving licences etc as these are so easy to purchase on the internet. Some of the forged documents we see are so sophisticated that it requires very specialist technology combined with human intervention to spot they are fakes. Therefore, firms relying on documents alone should be very wary of exactly who they are dealing with. If they are in any doubt, they should be running electronic checks to validate that the document is genuine.
GDPR is now law and many firms have struggled to get their heads around what is a very complicated piece legislation, however, it’s evolution not a revolution from the Data Protect Act. Businesses need to map out the personal data they hold and understand one of the six legal bases they hold it for. This should all be documented and brought to the attention of anyone who’s affected by it. In line with GDPR the Money Laundering Regulations have now stipulated that all Know Your Customer evidence will need to be destroyed five years after the business relationship ends.
FR: How has fintech has changed the lending market and what challenges are left to overcome?
The credit crunch in 2008/9 caused the big banks to stop lending and shore up their balance sheets. Whilst this was not the start of Fintech, it certainly created the right atmosphere for it to boom. Originally, the more agile financial services firms used Fintech in the back end of their businesses, however, these technologies are now being deployed at the front end such as mobile payments, loans, money transfer and fundraising. Just look at the rise in peer to peer lending. When traditionally you would go to a bank or a loan company, now you can borrow a few thousand pounds and the money comes from literally hundreds of investors you have never met.
The next big Fintech revolution will be open banking. The big banks have always had the upper hand due to the large amount of transaction data they hold; this will completely change with the introduction of open banking. The ability to share all my transaction data together with, say, my credit balances/payment history and make this available to a trusted 3rd party will lead to some great innovations. Machine learning on vast volumes of data like this will create a whole set of new financial products.
FR: If you could see one headline about financial services in 2018, what would it be?
I think if I could see one headline about financial services in 2018 it would be “There are no banks left that are too big to fail”.