PEP and sanctions screening falls – Survey

A survey of professional services firms has identified a fall in the number of regulated firms who “always” check new customers again sanctions or Politically Exposed Persons (PEP) lists.

From 84% of firms committed to “always performing checks,” the legal sector has fallen to 24% according to the survey. Financial services has also seen a stark decline, from two-thirds (66%) to just over a fifth (22 per cent); and estate agents demonstrate a similar downturn, from over 37% to 24%.

The statistics have been revealed following a survey of 500 compliance decision-makers across financial services, estate agents, mortgage brokers, intermediaries, accountancy and law firms by ID sand AML compliance provider SmartSearch. The results have been described as

“alarming given the given the recent global geopolitical tensions between the West and China, echoing the lessons from last year’s sudden raft of sanctions against Russia. The introduction of new sanctions could swiftly covert seemingly low-risk, longstanding UK clients into high-risk entities overnight. This underscores the urgent need for robust compliance processes to avoid the substantial fines associated with a breach.”

Estimates on the cost of money laundering in the UK vary, but it is widely acknowledged that it costs the UK economy more than £100bn annually and the International Monetary Fund (IMF) estimate that financial crime equates to 2%-5% of global Gross Domestic Product.

The Solicitors Regulation Authority has recently acted in response to its own thematic review and issues a warning notice to “remind the profession of its obligations” and warns that fixed financial penalties for AML systems and controls failings will be reviewed in the next year. The Council for Licensed Conveyancers has similarly stated its own regulatory focus will remain on AML in 2024.

Commenting on the survey results Martin Cheek, managing director of SmartSearch said:

“The backslide in this year’s data underlines a worrying theme of complacency on compliance. Sanctions are not a static list, they are a dynamic and rapidly evolving tool of foreign policy. Firms that think occasional checks are sufficient are not just naïve, they’re risking severe penalties, including substantial fines.

“Under the Economic Crime Act, breaches of financial sanctions are punishable by fines of up to £1 million – and let’s not forget the accompanying reputational damage. In this digital age, news travels fast, and being named and shamed for a sanctions breach can be devastating.”

COO Collette Allen added

“The speed at which sanctions can be imposed can catch firms off guard. It is crucial that regulated firms are proactive rather than reactive when it comes to their digital compliance.

“Our recent survey data shows that firms are still not taking adequate steps to ensure they are not dealing with sanctioned individuals or entities. It is simply not enough to have screened a client ‘sometimes’ or ‘often’ and assume the job is done.”

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