Just one in six banks run ID checks on all new customers

UK banks are worryingly lackadaisical when it comes to their compliance requirements according to brand new research from digital compliance experts SmartSearch.

• Just 18% of banks ‘always’ verify the identity of new customers despite it being a legal requirement

• One in 20 banks admit to ‘never’ running proper ID and verification checks as part of customer onboarding

• Despite the fact more than 1,600 individuals are subject to sanctions under the Russia regime alone, just one in four banks say they screen all new customers against sanctions and PEPs

In its new report - EV Uncovered III -Emerging financial sectors – SmartSearch interviewed 500 compliance decision makers across range of regulated sectors including banking, property, gaming and crypto and discovered the vast majority are not meeting their anti-money laundering (AML) requirements.

Overall, just 22% of respondents said they ‘always’ verify the identity of new individual customers at onboarding, 33% said they ‘often’ do and 43% said ‘sometimes’ or rarely’. Worryingly, 3% said they never run checks.

And despite being a sector that has been regulated for years, the report found that banks are often the least likely to have proper procedures in place.

Amongst compliance decision makers in the banking sector, just 18% run ID and verification checks on all new customers – much lower than in the emerging property development (30%) and crypto (25%) sectors.

Not only are most banks not running checks at onboarding but most are not monitoring their existing clients regularly enough either. Ideally, regulated firms should run daily checks, but just 6% of banks do this - almost half (46%) only run checks monthly (25%), between 2 months and a year (18%), less than once a year (1%) or never (1%).

This is even more worrying when you consider that 42% of banks admit to being a victim of money laundering and/or financial crime in the past six months and the vast majority (60%) admit they are ‘worried’ they are committing an AML breach due to their lack of proper procedures.

Increased Russian threat

Currently, more than 1,600 individuals and 228 entities are subject to UK sanctions under the Russia regime, and almost a third (30%) of banks say more than half their customers are foreign nationals.

Yet, just one in four banks run sanctions checks on all new customers, and 40% admit they have not changed their onboarding process at all since the new package of sanctions were imposed on Russia. More than one in ten (11%) have even reduced checks on clients in relation to ongoing sanctions in Russia.

However, despite the fact that most banks are not running proper checks, 70% still claim they are ‘confident’ none of their existing clients are on a sanctions or PEP list – but this is mainly due to misplaced ‘trust’ than any evidence. In fact, almost half (47%) say they don’t worry about sanctions or other breaches because they ‘trust their clients’ while, despite the banking sector being one of the most commonly targeted by financial criminals, 40% think they don’t need to worry because are ‘not in a sector that is affected’. Just a third (36%) are confident no clients are on sanctions or PEP lists because they are actually running regular checks so can see that their database is compliant.

Martin Cheek, Managing Director at SmartSearch said: “Our report makes very worrying reading, as it shows that, despite being subject to anti-money laundering law and compliance requirements the vast majority of banks are not taking their obligations seriously, with just one in four saying they ‘always’ verify new customers and 47% saying they don’t worry about sanctions or other breaches because they ‘trust their clients’.

“By having such a poor attitude to AML, banks are opening up their doors to criminals, enabling them to potentially get away with financial crimes, and risking non-compliance which can result in multi-million-pound fines and irreversible reputational damage.”

Most rely on outdated, inaccurate manual processes

SmartSearch’s report has not only uncovered a severe lack of AML compliance amongst banks, but also that those banks that do have AML procedures in place are often relying on outdated and inaccurate manual processes.

Six in ten (60%) banks surveyed for the EV Uncovered III -Emerging financial sectors report either rely completely on manual checks (40%) or a mixture of manual and electronic checks (18%). More than a third (38%) do this because it is the way they have always done it, while 36% wrongly believe that seeing hard copy ID documents is the only way to truly guarantee a person’s ID.

Martin Cheek, Managing Director continued: “The fact so many banks are still relying on hard copy documents to verify ID when they can be so easily forged is really concerning, especially when so many believe it is the only way to run a proper ID check. In reality, the most accurate way to run a check is electronically as it cross references multiple data sources and screens for sanctions and PEPs all in one easy check, making it quick and easy to run a robust verification check.

“What’s more, with SmartSearch, our biometric technology and enhanced due diligence capability removes false positives, making our pass and check the highest on the market, and, with every check uploaded to the system, SmartSearch can monitor all checks daily for any changes, creating a clean and compliant position for customers, meaning they don’t need to worry about compliance breaches.”