The flow of dirty money into UK challenger banks is increasing. Almost half (47%) report a rise in the number of Suspicious Activity Reports submitted over the past six months.
The data is released by SmartSearch, a UK provider of digital compliance solutions. Its survey covers compliance decision-makers in high-street and challenger banks, crypto platforms, property developers and gambling firms.
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However, despite being targeted by criminals, many challenger banks admit to relying on flawed manual checks to verify customers. Almost half (40%) said they verified new individual and business clients manually. They wrongly believe that taking copies of official documents like passports or driving licences provides “reassurance” that customers were genuine.
An FCA review last year raised concerns over the adequacy of challenger banks’ defences against financial crimes. This followed a “substantial” increase in suspicious activity reports.
The proceeds of Crime Act requires regulated firms to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) if they believe that someone is trying to clean dirty money earned from the proceeds of crime. The number of SARs submitted has doubled in the last five years. Moreover, the NCA has estimated that it will hit a million for the first time this year.
High street banks also under attack
SmartSearch’s survey also showed that more than a quarter of high-street banks saw an increase in the number of SARs submitted, with 40% relying on manual checks to verify customers.
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By GlobalDataSmartSearch MD Martin Cheek said: “These figures are concerning. They show that there is no abatement in criminal attempts to wash dirty money through the UK economy. Far from it – suspicious activity is clearly increasing.
“But that concern is compounded by the number of firms who also admit to a continued reliance on manual checks to onboard new customers. If these sectors are seeing a rise in suspicious activity, then their customer verification and anti-money laundering procedures should be as robust as possible. But our survey shows that they are not.
“These firms should be investing in a digital compliance solution to limit the risk of breaching compliance rules and having to deal with the considerable fines and reputational damage that accompany such a breach.”
SmartSearch Electronic Verification Uncovered campaign
The survey is the third in SmartSearch’s continuing Electronic Verification Uncovered campaign. This aims to make regulated firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification. The campaign argues that regulated businesses should use digital compliance. According to SmartSearch, this would ensure they properly identify and screen clients. The firms says that this recommended by the government in the 2020 Money Laundering and Terrorist Finance Act. The legislation aims to stem the flow of dirty money into the UK. In addition, it protects firms from the fines and reputational damage which come with breaches.
