Manual checks instead of electronic ID verification leave FS vulnerable to money laundering

By Puja Sharma

More than a third (36%) of people in regulated firms who ‘can’t trust’ electronic ID verification and instead rely on manual checks, are leaving their doors open to financial crime, anti-money laundering expert warns.

This statistic – from SmartSearch’s 2023 annual survey of 500 compliance stakeholders – has doubled since their 2022 survey, when 18% of people said they couldn’t trust the technology.

Fraser Mitchell, technical director of SmartSearch, said, “This indicates a significant dip in trust for electronic ID verification technology. And yet it is recommended as part of the due diligence process in the Money Laundering and Terrorist Finance Act 2020. We believe many regulated firms may be unaware of this advice, hence the mistrust. In the meantime, criminal gangs are washing billions through the UK’s financial systems. It’s a real concern.”

In regulated firms – including accountancy, property, financial and legal services – 87% of those who use manual methods of ID verification were naively confident that they could identify a fake document such as a passport, driving licence or utility bill. The survey revealed great disparity in this misplaced confidence among the four sectors.

In accountancy firms, more than four out of five (81%) compliance stakeholders said they were confident they could spot a fake, compared to a massively overrated 94% in property companies. The financial sector was similarly high, with nearly everyone (95%) believing they could manually spot a fake ID, despite forgery risks. At 68%, the legal sector was the least confident.

The survey also revealed that a quarter (25%) of compliance stakeholders in accountancy firms don’t trust electronic ID verification. More than double that number (56%) of property professionals don’t trust it, which is nearly five times the number (13%) of people in property who claimed not to trust electronic ID verification in 2022.

In the financial services sector, 40% of compliance stakeholders said they don’t trust the technology. That’s double the number (20%) of people who distrusted it the year before.

Trust in electronic ID verification within the legal sector dipped only slightly compared to the other regulated firms, with 23% of legal professionals in 2023 saying they mistrust it, compared to 20 percent in 2022.

Nicola Gifford, general counsel at SmartSearch added: “Due diligence processes are critical to helping regulated firms mitigate risk – both financial and reputational. So it is important that we help engender trust in electronic ID verification within these businesses.

“This is our third ‘Electronic Verification (EV) Uncovered’ campaign. Our objective is to address common misconceptions among regulated firms, with a view to lowering the barrier to businesses adopting EV as standard practice.”