More than half of UK regulated firms are struggling to verify who ultimately owns or controls the businesses they deal with, creating significant exposure to fraud, sanctions breaches and financial crime, according to new research from compliance specialist SmartSearch.

Its 2026 Compliance Report found that 52% of firms cannot reliably verify ultimate beneficial ownership (UBO), despite legal obligations to identify who sits behind the entities they transact with.

The study, based on a survey of 1,000 senior decision-makers across financial services, property, legal and accountancy sectors, suggests criminals are increasingly exploiting ownership complexity and weaknesses in identity checks.

The research also found that 54% of firms still rely primarily on manual identity verification processes, even as fraudsters increasingly use AI and synthetic identities to evade controls. SmartSearch said this leaves businesses vulnerable to criminals using fabricated identities, compromised personal data and complex ownership structures to pass compliance checks.

When asked to identify their biggest compliance challenge, 24% of firms pointed to abuse of digital identity and certified ID processes, while 22% cited synthetic identity fraud and misuse of personal data. Cryptocurrency-related money laundering was named by 19% of respondents and 13% raised concerns around terrorism financing.

Despite these risks, commercial consequences remain severe. Nearly nine in ten firms (87%) said they would stop working with a business following confirmed money laundering, fraud or compliance failures, while 77% viewed association with a major fraud scandal as a significant reputational threat.

Phil Cotter, CEO of SmartSearch, said: "Identity sits at the centre of every business relationship, but criminals are exploiting the gap between who a company appears to be and who actually controls it. Firms still relying on manual processes are bringing paper to a digital fight."

The company added that upcoming changes to money laundering regulations and tighter enforcement under the Economic Crime and Corporate Transparency Act will increase pressure on firms to strengthen beneficial ownership checks and fraud prevention controls.

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