92% of regulated firms risk financial crime due to lack of daily monitoring


In an eye-opening revelation, a staggering 92% of regulated firms have been identified as not conducting daily customer due diligence (CDD).

This lack of consistent monitoring places these firms at a significant risk of financial crime, including sanctions breaches and money laundering. This alarming statistic was uncovered in SmartSearch’s latest survey conducted in September 2023, which polled more than 500 compliance decision-makers across various sectors including finance, legal, property, and accountancy.

This figure marks an 8% increase from the previous year’s findings, indicating a worrying trend in the compliance practices of regulated businesses. Specifically, the property sector emerges as the most vulnerable, with 95% of firms neglecting daily checks. Not far behind, the financial services sector shows a 94% non-compliance rate, a 6% increase from 88% in 2022. Accountancy and legal firms are also lagging, with 88% not performing the necessary daily due diligence on their clients.

The consequences of such oversight can be dire. Martin Cheek, managing director at SmartSearch, emphasises the growing complexity of financial crimes and the mounting regulatory pressures. Cheek highlights the critical need for firms to adopt more effective compliance strategies to mitigate financial and reputational risks. He points out the severe legal implications of sanctions breaches, which could lead to criminal offences punishable by up to seven years in prison.

Cheek advocates for the adoption of electronic verification (EV) and a perpetual KYC (pKYC) model. This approach leverages real-time data and intelligence, including sanctions and politically exposed person (PEP) screenings, to continually assess and update the risk profile of clients. Such a model not only enhances the accuracy of client assessments but also significantly reduces the risk of compliance failures.

This shift towards digital compliance strategies and the implementation of a pKYC model represents a pivotal move for firms aiming to stay ahead in the regulatory landscape. The move towards digital solutions offers a beacon of hope for mitigating the risks associated with financial crimes, ensuring that firms can maintain integrity and compliance in their operations.

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