Digital AML provider launches campaign to highlight flaws in manual methods

Leading UK RegTech specialist SmartSearch has launched a new Electronic Verification Uncovered campaign, to raise awareness of the dangers of relying on outdated methods of identity verification for regulated businesses.

The campaign is part of the SmartSearch Index report which is being published to highlight the ongoing threat of money laundering in the UK.

New research* commissioned by the West-Yorkshire based AML solution provider, has found more than a third (34%) of regulated businesses across the financial services, legal and property sectors, still make manual checks when onboarding new customers.

In fact, the research highlighted that in the legal sector specifically manual methods of verification are still preferred by as much as 42% of the firms surveyed. Whereas a third (33%) of financial services, banks and estate agents confirmed they relied on manual checks.

The research, carried out among 500 UK regulated businesses in June, covered a range of topics related to how firms carry out their due diligence obligations. It found that almost one in ten (8.5%) firms in the property agency sector said they do not verify customer ID at all.

In addition, 10% of all firms in the survey said they carry out no checks on business customers with only 70% saying they check financial records as part of the business customer onboarding process – this dropped to 60% in the legal sector.

John Dobson, CEO at SmartSearch, which now operates in the US and the EU, said some of the findings were concerning as hard documents are so vulnerable to being forged.

He said: “It’s really important for regulated businesses to realise that when it comes to secure methods of customer ID verification, documents are high risk and should be at least supplemented with reliable low risk electronic verification.

“This is not only because of the increase in money laundering and financial crime we’ve seen since the start of the pandemic, but also the increasing cost of manually complying with regulations.

“Businesses need to make due diligence and Know Your Customer (KYC) obligations more efficient in terms of speed and cost, as well as remaining secure and accurate. That is not possible by relying on checking passports, driving licences and council tax bills.

“So, we asked businesses why they are still using manual methods of verification and a third said they felt hard copy documents gave them the reassurance that the customer was genuine.

“It’s that kind of belief that we are looking to overturn with our campaign, because increasingly when you’re inviting a customer to send copies of hard documents for verification, you’re actually inviting fraud in through the front door.”

Issues of compliance appear to be behind the decision by those firms to still use manual methods of verification, with a quarter overall (24%) saying it meets AML obligations and a further 30% claiming it’s the only way to guarantee a person’s identity.

However, Dobson is keen to point out that the use of electronic verification has been endorsed in UK law and is much more reliable and accurate.

He said: “When it comes to compliance, regulated businesses can be assured that electronic verification is approved in law. As part of our EU exit, changes to the Money Laundering and Terrorist Financing Regulations 2020 clarifies its support for the increased use of electronic verification.

“Moving away from manual ID checks to electronic verification, will provide regulated firms and their leaders with the confidence that the door is shut against the threat of fraud and money laundering.”