Majority of regulated firms do not always complete essential identity checks

16 November 2023

More than two thirds of regulated firms (70%) do not always complete essential identity checks when taking on new individual customers, new survey data can reveal.

Less than half of regulated firms (46%) ‘often’ complete verification checks, while almost a quarter (21%) of regulated firms only ‘sometimes’ complete verification checks, either manually or electronically. Without proper identity checks of all customers – a requirement of regulated firms within the UK, compliance experts warn that organisations are leaving themselves exposed to financial crime, regulatory action and reputational damage.

The findings are revealed in a comprehensive new survey of 500 decision makers in regulated UK businesses across the legal, property, finance and accountancy sectors. The research was commissioned by SmartSearch, the UK’s leading provider of anti-money laundering (AML) and digital compliance solutions.

Despite the clear mandate for conveyancers and estate agents to complete identity checks on property buyers, three quarters (75%) of property firms and 7 in 10 legal firms admitted that they do not always complete such checks.

Even with the obligation to carry out identity checks on all clients, three percent of legal professionals still said that they never verify the identity of individuals. One percent of estate agents also made the same admission. Of all the sectors surveyed, accountancy firms are most likely to ask for proof of identity or run a check, but still only 32 percent of firms responded always.

It comes as the latest report from Cifas found that cases of identity fraud rose by almost a quarter last year, and now accounts for nearly 70 percent of all cases filed to its National Fraud Database.

Major regulators including the Financial Conduct Authority (FCA) and the Solicitors Regulatory Authority (SRA) have consistently taken action against firms for failing to conduct adequate identity checks.

Martin Cheek, a qualified lawyer and managing director of SmartSearch, said: “When a regulated firm is asked how often they verify the identity of customers, the answer should be always. Not only is it a clear regulatory requirement to complete such checks, it is critical in protecting the business from financial crime. Rather than a worrying reduction in checks, regulated firms should be increasing checks in line with the rising threat level.

“Just as important is the shift to electronic verification (EV) as criminals continue to find new ways to falsify official identity documents. Such is the risk of forged documentation, a switch to EV is even recommended by the 2020 Money Laundering and Terrorist Financing Act. Rather than flawed and time-consuming manual processes, EV presents a robust, efficient and cost-effective way to screen both new and existing clients – all while avoiding intervention from regulators.”

The latest survey is the third iteration of SmartSearch’s Electronic Verification Uncovered campaign, which questions firms on their attitudes and approaches to compliance. The campaign argues that regulated businesses should use digital onboarding to ensure they minimise their exposure to financial crime, improve customer experience and meet the requirements of regulators.

The latest EV Uncovered campaigns follows the launch its next-generation platform, continuing a more than decade-long journey to support regulated firms with their anti-money laundering (AML) compliance. Its digital solution is trusted by more than 6,500 clients and 60,000 users. In addition to more than 2,000 financial services firms and over 1,000 property firms, this includes one in two of the top 100 accountancy firms and one in three of the top 200 legal firms.

The research was conducted by Censuswide with a sample of 501 compliance decision-makers who take on new individual customers and new business clients. The survey fieldwork took place between September 11 and September 18, 2023. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of The British Polling Council.