More than half of emerging finance firms lacking business verification checks

More than half of firms in emerging finance sectors do not always check who is running the businesses they take on as new clients, new SmartSearch data has revealed.

Almost one-in-three respondents (28%) said they often carry out verification checks, 21 percent of firms only did so sometimes, while nine percent say they rarely identify the owners and directors of the business, for example.

It comes almost one-year on from the launch of the Register of Overseas Entities, which identified thousands of UK properties owned by offshore shell companies with complex corporate structures and anonymous ownership. All firms across financial services have a responsibility under the UK’s anti-money laundering (AML) regulations to determine the ultimate beneficial owner (UBO) of any business they have dealings with.

Without such checks, firms are unable to identify the true ownership of assets or the true origins of funds, leaving firms open to potential sanctions and AML breaches.

Among the worst offenders were banks, with nearly two thirds admitting they don’t always verify the identity of people running the businesses they take on as new customers. Worryingly, high street banks performed worse than challenger banks, with 70 percent stating they do not carry out such checks, compared to just over half of challenger banks (56%).

Meanwhile, two thirds of crypto firms, more than half of property developers and half of casinos all revealed that they are leaving themselves open to potential sanctions and AML breaches with a lack of verification checks.

Martin Cheek, Managing Director of SmartSearch said: “Firms across financial services have long been seen as the gatekeepers of the UK’s financial system. Without these fundamental verification checks, it’s impossible to not only fulfil this responsibility, but to protect their businesses from illicit funds and financial crime.”

“While Know Your Customer (KYC) checks are a well-established part of compliance, Know Your Business (KYB) is just as critical, enabling firms to assess the risk posed by new business customers. This includes identifying beneficial owners and the true source of funds, screening for sanctions or politically exposed persons (PEPs), and verifying the company’s existence. This onerous task has been made much simpler through innovations in digital compliance, allowing firms to access real-time information and complete detailed checks in minutes.”