SmartSearch has found a significant number of regulated firms are dangerously exposing themselves to financial crime by failing to perform mandatory verification checks on new business clients.
A comprehensive survey conducted across the legal, property, finance, and accountancy sectors has uncovered alarming statistics that bring to light a glaring compliance issue. Notably, 59% of the regulated firms admitted to not consistently conducting these critical checks, which are essential for identifying the owners and directors of the businesses they engage with. This oversight is most prevalent in property firms, with 65% acknowledging this shortfall in their verification processes.
The research further highlighted a concerning decline in the identification of ultimate beneficial owners (UBOs), with only 37% of regulated firms undertaking this necessary step—a stark decrease from the previous year’s 53%. This drop is alarming given the UK’s regulatory mandate that requires all regulated entities to ascertain the UBOs of any business they deal with. This negligence paves the way for criminal activities, as it becomes easier for illegitimate funds to be laundered through complex corporate structures and shell companies, posing a significant risk not only to the firms but also to the integrity of the financial system.
The urgency for robust Know Your Business (KYB) practices has been further underscored by new findings from Moody’s Analytics, which positioned the UK as the top global hotspot for shell company-related risks, with nearly five million red flags identified. This places the UK ahead of China and the United States, highlighting the critical need for comprehensive and diligent verification checks.
SmartSearch’s survey of 500 decision-makers reveals a clear call to action for regulated firms. Martin Cheek, managing director of SmartSearch and a qualified lawyer, emphasized the complexity yet critical nature of KYB processes in compliance efforts. He advocates for the adoption of advanced technological solutions to streamline these checks, thereby enabling firms to mitigate the risks associated with financial crime effectively. SmartSearch’s unique UK business check, alongside its international counterpart, offers a rapid and comprehensive solution for firms to identify potential red flags within minutes, covering over 90 countries worldwide.
This push towards digital compliance strategies represents a pivotal shift for regulated firms, aiming to not only safeguard against financial crime but also to avoid the severe consequences of regulatory non-compliance, including substantial fines and legal action.
SmartSearch managing director Martin Cheek 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.”
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