Majority of regulated firms not completing essential identity checks

Less than half of regulated firms (46%) ‘often’ complete verification checks.

Related topics:  Finance News,  Regulation
Rozi Jones | Editor, Barcadia Media Limited
20th November 2023
search tech
"Rather than a worrying reduction in checks, regulated firms should be increasing checks in line with the rising threat level."
- Martin Cheek, managing director of SmartSearch

More than two thirds of regulated firms (70%) do not always complete essential identity checks when taking on new individual customers, new research from SmartSearch reveals.

Less than half of regulated firms (46%) ‘often’ complete verification checks, while almost a quarter (21%) of regulated firms only ‘sometimes’ complete verification checks, either manually or electronically. Without proper identity checks of all customers – a requirement of regulated firms within the UK - compliance experts warn that organisations are leaving themselves exposed to financial crime, regulatory action and reputational damage.

The findings are revealed in a survey of 500 decision makers in regulated UK businesses across the legal, property, finance and accountancy sectors.

Despite the clear mandate for conveyancers and estate agents to complete identity checks on property buyers, three quarters (75%) of property firms and 7 in 10 legal firms admitted that they do not always complete such checks.

Even with the obligation to carry out identity checks on all clients, 3% of legal professionals still said that they never verify the identity of individuals, while 1% of estate agents also made the same admission. Of all the sectors surveyed, accountancy firms are most likely to ask for proof of identity or run a check, but still only 32% of firms responded 'always'.

It comes as the latest report from Cifas found that cases of identity fraud rose by almost a quarter last year, and now accounts for nearly 70% of all cases filed to its National Fraud Database.

Major regulators including the FCA and the Solicitors Regulatory Authority (SRA) have consistently taken action against firms for failing to conduct adequate identity checks.

Martin Cheek, a qualified lawyer and managing director of SmartSearch, said: “When a regulated firm is asked how often they verify the identity of customers, the answer should be always. Not only is it a clear regulatory requirement to complete such checks, it is critical in protecting the business from financial crime. Rather than a worrying reduction in checks, regulated firms should be increasing checks in line with the rising threat level.

“Just as important is the shift to electronic verification (EV) as criminals continue to find new ways to falsify official identity documents. Such is the risk of forged documentation, a switch to EV is even recommended by the 2020 Money Laundering and Terrorist Financing Act. Rather than flawed and time-consuming manual processes, EV presents a robust, efficient and cost-effective way to screen both new and existing clients – all while avoiding intervention from regulators.”

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