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

The survey by the anti-money-laundering (AML) software firm, which questioned 500 compliance decision-makers in banks, challenger banks, crypto platforms, property developers and gaming outlets, found that almost one in three (28%) firms carry out regular verification checks.

Just 21% of firms surveyed said that they only carried out these checks regularly, with just 9% saying they rarely identify the owners and directors of the business.

The survey, which is the third in SmartSearch’s ‘Electronic Verification Uncovered’ campaign, comes just a year after the launch of the Register for Overseas Entities, which identified thousands of UK properties owned by offshore shell companies with complex corporate structures and anonymous ownership.

Under the UK’s AML regulations, all financial services firms have a responsibility to determine the ultimate beneficial owner (UBO) of any business they have dealings with. Without these 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.

The survey that banks were the worst offenders, with almost two thirds admitting they don’t always identify of people running the businesses they take on as new customers. SmartSearch has said that it is worrying that high street banks are performing worse than challenger banks, with 70% stating that they do not carry out such checks, compared to just over half of challenger banks (56%).

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

Managing director of SmartSearch, Martin Cheek, 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.”

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