Regulated firms exposed to serious red flags without new business verification checks

Regulated firms exposed to serious red flags without new business verification checks, data in a new survey by SmartSearch has revealed.

Regulated firms that take on new business clients are leaving themselves exposed to serious red flags by not completing critical verification checks on the people running the business, new survey data has uncovered.

More than half (59%) of the regulated firms questioned by SmartSearch said that they do not always carry out these essential checks, despite the clear regulatory requirement to do so in every instance. Among those firms, 40 percent said they ‘often’ identify the owners and the directors of the business, for example, rather than in every case.

Property firms, including estate agents are most likely to skip this critical step, with 65 percent of firms admitting they do not always carry out verification checks on new business clients. The remaining firms across the legal, finance and accountancy sectors all reported similar results, with around 58 percent of respondents not always verifying identities.

The same survey also found that as part of checks, only 37 percent of regulated firms actually identify the ultimate beneficial owners (UBOs) – a drop from more than half (53%) in the previous year’s survey. This is despite the fact that all regulated firms are required under the UK’s anti-money laundering (AML) regulations to determine the ultimate beneficial owner of any business they have dealings with. 

It comes as criminals continue to hide behind complex corporate structures and shell companies to clean illegitimate funds through a seemingly legitimate business. Without such checks, businesses face the risk of enabling this activity and the fierce regulatory action and significant fines that comes with it.

The importance of UBO checks and robust Know Your Business (KYB) procedures has been amplified recently, as new research from Moody’s Analytics revealed that the UK is number one in the world for shell company-related risks, with nearly five million red flags. This is considerably higher than China, in second place, and the United States in third.

The shocking admissions by regulated firms are revealed in a comprehensive new survey of 500 decision-makers across the legal, property, finance and accountancy sectors. The research was commissioned by SmartSearch, the UK’s leading provider of AML and digital compliance solutions.

Regulated firms exposed to serious red flags without new business verification checks

Martin Cheek

Martin Cheek, managing director of SmartSearch and a qualified lawyer, said:

“There’s no question that KYB processes can be the most complex part of compliance, but given the significant red flags businesses are exposed to, it is also one of the most critical.

“Given the clear requirements of regulators, advancements in technology can help streamline this process considerably and help firms complete such checks.

“Now is the time to take action to not only protect the business from serious financial crime, but prevent any intervention from the regulator.

“By implementing a digital compliance strategy, regulated firms can start to build a proper picture of the businesses they are working with and truly assess any risks posed.

“Our UK business check at SmartSearch is unique in its ability to combine key processes such as Companies House checks, financial summaries and enhanced due diligence on corporate structures and individuals linked to the business.

“One of these checks takes just a couple of minutes and instantly alerts users to any potential red flags.

“Combine this with our international business check, which covers more than 90 countries worldwide, and firms have the intelligence necessary to make informed business decisions.”

SmartSearch’s next-generation platform is trusted by more than 6,500 clients and 60,000 users. In addition to many of the world’s leading financial services firms and over 1,000 property firms, this includes one in two of the top 100 accountancy firms and one in three of the top 200 legal firms.


The research was conducted by Censuswide with a sample of 501 compliance decision-makers who take on new individual customers and new business clients. The survey fieldwork took place between September 11 and September 18, 2023. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of The British Polling Council.

For more information, please visit here, or call 0113 537 4042.


Kindly shared by SmartSearch