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By Martin Cheek

Managing Director, SmartSearch


Going digital is the answer to sector compliancy woes

If recent headlines are anything to go by, estate agents and the wider property industry are not just feeling the heavy burden of compliance, they’re buckling underneath the pressure.

The latest news is action from HMRC and fines for 68 agents of more than £500,000 for anti-money laundering (AML) failures and compliance breaches. Rather than just a one-off, it’s unfortunately an ongoing pattern of non-compliance. Back in May, a further 41 estate agents received penalties.

With HMRC continuing to take action against those who ignore their legal obligations, and Propertymark opening proceedings on those members named and shamed, it really is a question of when rather than if for firms that lack the necessary AML checks and procedures.


At the coalface

It’s clear to see why HMRC, along with industry regulators and watchdogs are so hot on the topic. Not only does the National Crime Agency (NCA) predict as much as £90 billion is laundered through the UK, but the property sector is at the coalface of both money laundering and serious financial crime.

In fact, the sector has long been a popular target for criminals and exposed persons to filter dirty money. Research by Transparency International puts the figure at around £6.7 billion since 2016.

One of the biggest pressure points in recent years has been high demand – caused in part by COVID measures such as ultra-low interest rates, stamp duty holidays and extensions to the help to buy scheme. As workloads increased and temporary measures brought hard deadlines, there’s no question there was an impact on both the standard and frequency of anti-money laundering checks.

As rumours began to swirl about the recent changes to stamp duty, I’m sure it felt like groundhog day once again for the sector. But while opinion is divided on the move and some argue the market reaction may negate any real advantage, the hope is it will encourage activity as homeowners see a drop in the cost to move.

It’s hoped the permanent nature of the new measures will at least help alleviate the chaos of last year’s change – a situation the sector is still desperately trying to recover from. But nevertheless, it’s clear businesses at every level should anticipate any extra activity and learn from the lessons of the past few years – especially when it comes to overhauling compliance procedures.

Time wasting manual checks

One of the historic compliance challenges facing the sector has been an over-reliance on flawed manual checks. As the world continues to move towards a digital future, many firms still manually verify the identity of customers through passports, licences or paper utility bills.

It’s especially worrying when you consider their vulnerability to forgery. Not only are criminals getting smarter but fakes are getting harder to identify. Plus, they’re accessible too with reports of forged UK passports being sold through social media platforms like TikTok.

At SmartSearch, our recent electronic verification (EV) survey of 500 regulated firms revealed that only a third of respondents felt confident enough to spot a fake. In addition, more than half of firms were taking anywhere up to a week to process manual documents. For one in eight firms, it took even longer.

At a time of increased activity and greater regulatory burden, is this flawed process really the best use of business time?

Missing sanction checks

If compliance pressures weren’t high enough already, Russia’s war in Ukraine has put greater emphasis on robust sanction checks. Not only is the number of sanctions growing daily but more than 7,200 individuals and 1,250 entities have been added since the conflict began.

But despite the changing landscape, our survey highlights a concerning lack of both sanction and PEP (politically exposed person) checks, with property firms among the worst offenders. More than a third (39 per cent) admitted to not completing any of these important checks against new customers.

It means firms are not only leaving themselves wide open to breaches, fines and reputational damage, but they are creating avenues for exposed people to filter money, circumvent sanctions and potentially fund Putin’s war.

A digital approach

Let me be clear. My intention is not to bash the property sector, especially after the turbulent few years firms have experienced. It’s also not fair the tar all firms with the same brush, especially as there’s real anger among those agents who do comply with the rules and protect both their clients and the public from criminal activity.

But the worrying findings of our survey, the volume of fines and the growing pressures on the market clearly necessitate a change in tack.

As businesses feel their regulatory burden increase and HMRC continues to crack down, the case to go digital with electronic verification (EV) and robust sanction screening has never been so clear cut. A cloud-based system like SmartSearch not only offers greater accuracy, utilising real-time data, AI and biometrics, but it’s far more efficient which hundreds of in-depth checks taking just seconds to complete.

Real-time monitoring and enhanced due diligence will be essential as firms navigate this changing landscape and meet the growing demands of regulators. This is especially true as sanctions increase with exposed people using creative ways and associates to protect assets and as existing customers potentially find themselves subject to new restrictions.

Rising to the compliancy challenge will take a clear change in culture to not only prioritise this very real threat, but to take advantage of the cutting-edge technology available to make AML and sanction procedures efficient and far more robust.

* Martin Cheek is managing director of SmartSearch, the leading online provider of anti-money laundering services


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