Recent survey data has shown that firms operating in emerging financial sectors show a concerning lack of commitment to screening new customers against sanctions or politically exposed persons (PEP) lists.

Research conducted by Censuswide on behalf of digital compliance firm, SmartSearch, which is part of the company’s electronic verification uncovered campaign, has found that 56% of these firms have admitted to performing such checks only “on occasions”.

SmartSearch has said that these firms run the risk of facing substantial fines and significant reputational damage associated with anti-money laundering (AML) breaches.

One year after the implementation of Russian sanctions, the survey has found that firms are failing to take their onboarding procedures seriously. It was found that over half (54%) of these firms confess to not making any changes to their compliance procedures, despite ongoing sanctions and the increasing spotlight on PEPs.

SmartSearch found that casinos are most likely to screen new customers against sanctions and PEP lists compared to online or high-street betting firms. However, less than a third of property developers, just under a quarter of challenger banks and one in five cryptocurrency firms state that they always carry out these essential checks.

Managing director at SmartSearch, Martin Cheek, said: “The figures reveal a larger problem with emerging financial sector firms and their unwise complacency towards compliance.

“These firms face the arduous task of keeping up with ever-changing compliance requirements, but simply screening new customers 'often' is not enough.”

The research has been emphasised by the rise of PEPs in mainstream media, first through the sanctions related to the Russian invasion of Ukraine and Nigel Farage’s case against Coutts. It highlights that not all PEPs are necessarily on sanctions lists or associated with criminal networks, leaving firms with the to make an informed decision.

As PEPs require personal banking services and the freedom to engage in property transactions, firms must exercise caution when dealing with them.

Cheek added: "The truth about PEPs is that they are not all easily recognisable; many of them are faceless names on a bank account. As a result, banks need the ability to not only flag PEPs but also make informed decisions on who they choose to do business with.”

Firms are urged to adopt robust digital compliance solutions that can efficiently flag PEPs and provide the necessary data to make informed decisions in order to mitigate the risks of compliance breaches. SmartSearch has said that by implementing these solutions, banks can effectively minimise compliance risks and enhance their due diligence processes, aligning with the recommendations outlined in the 2020 Money Laundering and Terrorist Finance Act.

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