Half of financial firms neglect sanctions and PEP list checks

Recent survey data reveals firms operating in emerging financial sectors show a concerning lack of commitment to screening new customers against sanctions or politically exposed persons (PEP) lists. Over half of these firms (56 per cent) have admitted to performing such checks only “on occasions”.

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 indicates that firms are failing to take their onboarding procedures seriously. In fact, over half of these firms (54 per cent) confess to not making any changes to their compliance procedures, despite ongoing sanctions and the increasing spotlight on PEPs.

The comprehensive survey conducted by digital compliance firm, SmartSearch, sheds light on various aspects of compliance practices within banking, crypto, property development, and gambling. Notably, casinos are shown to be more likely to screen new customers against sanctions and PEP lists compared to online or high-street betting firms. Surprisingly,  less than a third of property developers, just under a quarter of challenger banks and one-in-five cryptocurrency firms state they always carry out these essential checks.

Commenting on the survey data, Martin Cheek, managing director of SmartSearch, 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.”

Mr Cheek further emphasised the rise of PEPs in mainstream media, first through the sanctions related to the Russian invasion of Ukraine, and later Nigel Farage’s crusade against Coutts. It highlights that not all PEPs are necessarily on sanctions lists or associated with criminal networks, leaving firms with the need 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.

Outlining the complexities of identifying PEPs, Mr Cheek explained: “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.”

To mitigate the risks of compliance breaches, firms are urged to adopt robust digital compliance solutions that can efficiently flag PEPs and provide the necessary data to make informed decisions. 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.

SmartSearch has recently launched its next-generation platform which includes a seamless new interface as well as a host of features and a level of configurability never before available. Its digital compliance solution supports more than 6,000 clients and 55,000 users across the world, helping them deploy millions of complex identity checks in seconds.

The survey is the third in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make regulated firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification. The campaign argues that regulated businesses should use digital compliance to ensure they properly identify and screen clients – as recommended by the Government in the 2020 Money Laundering and Terrorist Finance Act – to stem the flow of dirty money into the UK and protect firms from the fines and reputational damage which come with breaches.

The research was conducted by Censuswide with 500 compliance decision-makers, aged 18+, who are in crypto (exchanges, OTC traders), gaming (casinos, online betting platforms, high-street betting shops), property development and banks (including challenger banks) between May 26 and July 2, 2023. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles, and are members of The British Polling Council.