Majority of regulated firms consider switch to electronic verification

More than 80% of regulated firms in the legal, property and finance and banking sectors are considering a switch to electronic verification (EV) of their customers, a new study has indicated.

Anti-money laundering (AML) software provider, SmartSearch, suggested that a switch to technology could be coming as firms continue to feel the growing weight of compliance around AML regulations – amid a sharp increase in the number of companies fined by regulators for breaches of the rules.

The most recent figures from HMRC show that 85 firms were fined and named last year for breaches of compliance regulations, while a freedom of information request revealed a sixfold increase in the number of legal firms fined by the Solicitors Regulation Authority since 2017.

Meanwhile, the FCA also recorded financial penalties totalling £568m for firms in the financial sector in 2021.

SmartSearch’s research, based on a survey of decision makers in 500 regulated UK businesses in the legal, property and banking and finance sectors, revealed that more than 90% of firms in the financing and banking sector are considering switching to EV, with two thirds of them “actively” doing so. However, almost a quarter (23%) of all surveyed firms persisted with the misconception that using hard-copy documents was more reliable than electronic checks.

Property firms were found to be least likely to turn to EV, with 40% saying they wouldn’t consider it and 13% saying they didn’t trust the technology. This comes despite the 2020 Money Laundering and Terrorist Finance Act recommending that regulated firms use EV in order to make their due diligence as effective as possible.

SmartSearch managing director, Martin Cheek, commented: “In a digital age, it’s disconcerting to see that some of the firms on the frontline in the fight against money laundering still don’t trust the technology of electronic verification over manual processes around hard copy documents.

“In fact, using EV is by far the most reliable way to carry out know your customer and know your business checks on new clients.

“And, as criminals produce ever-more sophisticated fraudulent versions of documents like passports and driving licences, EV can also verify official documentation quickly and reliably.

“EV also makes the firms’ own customer journeys more efficient and cost-effective. In short, as regulated firms start to buckle under the weight of compliance, investment in EV is a no-brainer.”

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