Regulated financial services firms are wasting time and money and putting themselves at risk of financial penalties by relying on compliance reporting and auditing procedures, SmartSearch has warned.

The anti-money laundering (AML) software provider suggested that “inefficient, legacy reporting processes” are undermining the productivity of firms.

SmartSearch managing director, Martin Cheek, said that these processes are leaving firms exposed to “unnecessary” downtime, fines and reputational damage in the event of a breach of AML or sanctions regulations.

“Firms are required to regularly update their compliance policies and procedures and part of that process is to demonstrate a robust and up-to-date audit trail, giving a comprehensive overview of their adherence to regulatory guidelines,” Cheek said.

“Audit reports demonstrate the validity and thoroughness of the firms’ compliance preparations, along with security policies, user access controls and risk management procedures.”

Cheek added that illicit funds will continue to wash through the UK while some firms continue to rely on inadequate or incomplete audits, and warned that breaching the rules unintentionally is “not a defence”.

“If the regulator knocks on your door, not having a proper audit trail is inviting a fine and reputational damage,” he continued. “Being audit-ready also minimises the considerable – and costly – management time which comes when a potential breach is being investigated.

“Being audit-ready doesn’t just save time and money, it also safeguards reputations and avoids the hefty fines and criminal prosecutions that come with compliance breaches.”

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