Regulated firms exposed without new business verification checks

More than half (59%) of the regulated firms that take on new business clients are leaving themselves exposed to serious red flags by not completing critical verification checks on the people running the business according to research by SmartSearch.

The research found that business said that they do not always carry out essential checks, despite the clear regulatory requirement to do so in every instance. Among those firms, 40 per cent said they ‘often’ identify the owners and the directors of the business, for example, rather than in every case.

Property firms, including estate agents are most likely to skip this critical step, with 65 per cent of firms admitting they do not always carry out verification checks on new business clients. The remaining firms across the legal, finance and accountancy sectors all reported similar results, with around 58 per cent of respondents not always verifying identities.

The same survey also found that as part of checks, only 37 per cent of regulated firms actually identify the ultimate beneficial owners (UBOs) – a drop from more than half (53%) in the previous year’s survey. This is despite the fact that all regulated firms are required under the UK’s anti-money laundering (AML) regulations to determine the ultimate beneficial owner of any business they have dealings with.

It comes as criminals continue to hide behind complex corporate structures and shell companies to clean illegitimate funds through a seemingly legitimate business. Without such checks, businesses face the risk of enabling this activity and the fierce regulatory action and significant fines that comes with it.

Martin Cheek, Managing Director of SmartSearch and a qualified lawyer, said “There’s no question that KYB processes can be the most complex part of compliance, but given the significant red flags businesses are exposed to, it is also one of the most critical. Given the clear requirements of regulators, advancements in technology can help streamline this process considerably and help firms complete such checks. Now is the time to take action to not only protect the business from serious financial crime, but prevent any intervention from the regulator.

“By implementing a digital compliance strategy, regulated firms can start to build a proper picture of the businesses they are working with and truly assess any risks posed. Our UK business check at SmartSearch is unique in its ability to combine key processes such as Companies House checks, financial summaries and enhanced due diligence on corporate structures and individuals linked to the business. One of these checks takes just a couple of minutes and instantly alerts users to any potential red flags.”