SmartSearch poll finds challenger banks struggle to verify customers against sanctions and PEP lists, with 24% checking regularly and 54% infrequently.

According to a recent poll commissioned by digital compliance company SmartSearch, challenger banks may be struggling to adequately check new customers against sanctions or politically exposed persons (PEP) lists. Only 24% of respondents to the SmartSearch poll claimed to always verify new consumers, and 54% readily confess to doing so only “on occasion.”

500 compliance decision-makers from crypto exchanges, casinos, online betting services, brick-and-mortar bookmakers, real estate development companies, traditional banks, and challenger banks responded to the Censuswide poll. Since the start of the Russian sanctions, 36% of challenger banks have altered their compliance practices. Though 60% of high street banks have taken additional safeguards, incumbent banks seem to have shown a little more haste.

Challenger banks may suffer considerable brand harm and substantial fines as a result of Anti-Money Laundering (AML) violations, according to SmartSearch.

The study is the third in SmartSearch’s continuing “Electronic Verification Uncovered” campaign, which aims to raise awareness among regulated businesses about the risks associated with relying on unreliable, antiquated techniques for identity verification.

The 2020 Money Laundering and Terrorist Finance Act recommends that regulated businesses use digital compliance to ensure that they properly identify and screen clients. This will stop the flow of illicit funds into the UK and shield businesses from fines and reputational harm that come with violations, according to the campaign.

According to a Financial Conduct Authority (FCA) review from last year, the majority of challenger banks did not gather information about customers’ income and occupation. This highlighted worries about the gaps in consumer due diligence (CDD). The FCA came to the conclusion that this led to an incomplete evaluation of the intended nature and purpose of a customer’s relationship with the bank.

Verify customers

Challengers encounter compliance issues

Challenger banks must work harder despite the challenges of keeping up with evolving compliance regulations, according to Martin Cheek, managing director of SmartSearch. “The figures reveal a larger problem with challenger banks and their foolish complacency toward compliance,” he said in his explanation.

These companies have a difficult time keeping up with ever evolving compliance regulations, yet simply “occasionally” screening new clients is insufficient.

The difficulties in identifying PEPs were also described by Cheek: “The fact about PEPs is that they are not all instantly recognisable; many of them are faceless names on a bank account. As a result, banks want the capability to not only identify PEPs but also decide with certainty with whom to conduct business.

Firms are recommended to deploy strong digital compliance systems that can effectively flag PEPs and offer the data needed to make educated decisions in order to reduce the risks of compliance breaches.

Banks might reduce compliance risks and improve their due diligence procedures by deploying these solutions, in line with the guidelines provided in the 2020 Money Laundering and Terrorist Finance Act.

With the aid of SmartSearch’s digital compliance solution, 55,000 users and more than 6,000 clients can instantly deploy millions of complicated identity checks.

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