Regulated firms should leave behind outdated and time-consuming compliance processes as a result of increased regulation and tighter budgets, SmartSearch has said.

Chief operating officer at SmartSearch, Collette Allen, has argued that regulated firms need to modernise their approach to compliance, not only to relieve growing regulatory pressures but to maximise available resources.

A report by Thomson Reuters last year found that the majority of financial services firms expected an increase in regulatory activity, yet at the same time reported managing cost pressures and balancing compliance demands as key challenges.

Separate to compliance with anti-money laundering (AML) rules, KPMG’s regulatory barometer also revealed increasing scrutiny around ESG, sustainable finance and payment systems. The barometer showed growing pressures on financial services as rules continue to become more ‘UK-centric’ post-Brexit.

Allen said: "There is no question that UK regulated firms continue to face significant pressure. Recent findings certainly mirror the feedback we are hearing on the ground – firms are at breaking point as compliance demands only increase, leading to difficulties when it comes to allocating resources effectively and keeping up with the evolving requirements.

"In truth, many firms have been slow to adopt a digital compliance strategy and instead maintain time-consuming and resource-heavy manual checks, particularly in their AML processes."

A recent survey by SmartSearch found that nearly half (48%) of regulated firms across legal, finance, property and accountancy sectors still have manual checks in some way to verify a customer’s identity.

More than a third (34%) said they use manual verification methods because it is the only way to "truly guarantee" a person’s identity. This is despite the fact that electronic verification is recommended by the 2020 money laundering and terrorist financing act.

"Such checks help drive up the cost of doing business, and in the case of these critical compliance checks, expose the business to a higher risk of financial crime," added Allen.

"Firms that have integrated technology are able to automate and strengthen what were onerous compliance tasks, such as identity verification, sanction screening and source of funds checks. Allowing technology to do much of the heavy lifting helps minimise human error and utilise staff and resources much more effectively."

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