Only one in five crypto firm always verify new customers against sanctions and PEP lists




Recent survey data reveals crypto firms show a concerning lack of commitment when it comes to screening new customers against sanctions or politically exposed persons (PEP) lists. Only one in five (17 per cent) say they always verify new customers, while half (50 per cent) also freely admit to performing such checks only “on occasions”.

The comprehensive survey conducted by digital compliance firm, SmartSearch, sheds light on various aspects of compliance practices within high-street and challenger banks, crypto platforms, property developers and gambling firms.

After a year of Russian sanctions, the survey indicates that firms are failing to take their onboarding procedures seriously. In fact, just over four in ten (42 per cent) OTP traders have made changes to their compliance procedures since sanctions. But crypto exchanges display a little more urgency with just over half (52 per cent) of exchanges taking additional measures.

The FCA announced an ongoing effort between partners in government and law enforcement to share intelligence and act to prevent sanctions evasion, including through crypto assets. The crypto industry run the risk of sleep-walking into substantial fines and the significant reputational damage associated with Anti-Money Laundering (AML) breaches.

Commenting on the survey data, Martin Cheek, managing director of SmartSearch, said: “The figures reveal a larger problem with crypto firms and their unwise complacency towards compliance.

“These firms face the arduous task of keeping up with ever-changing compliance requirements, but simply screening new customers ‘on occasions’ is not enough.”

Mr Cheek further emphasised the rise of PEPs in mainstream media, first through the sanctions related to the Russian invasion of Ukraine, and later Nigel Farage’s crusade against Coutts. It highlights that not all PEPs are necessarily on sanctions lists or associated with criminal networks, leaving firms with the need to make an informed decision. As PEPs require personal banking services and the freedom to engage in property transactions, firms must exercise caution when dealing with them.

Outlining the complexities of identifying PEPs, Mr Cheek explained: “The truth about PEPs is that they are not all easily recognisable; many of them are faceless names on an account. As a result, firms need the ability to not only flag PEPs but also make informed decisions on who they choose to do business with.”

To mitigate the risks of compliance breaches, firms are urged to adopt robust digital compliance solutions that can efficiently flag PEPs and provide the necessary data to make informed decisions. By implementing these solutions, banks can effectively minimise compliance risks and enhance their due diligence processes, aligning with the recommendations outlined in the 2020 Money Laundering and Terrorist Finance Act.

SmartSearch has recently launched its next-generation platform which includes a seamless new interface as well as a host of features and a level of configurability never before available. Its digital compliance solution supports more than 6,000 clients and 55,000 users across the world, helping them deploy millions of complex identity checks in seconds.

The survey is the third in SmartSearch’s continuing Electronic Verification Uncovered campaign, which 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 to ensure they properly identify and screen clients – as recommended by the Government in the 2020 Money Laundering and Terrorist Finance Act – to stem the flow of dirty money into the UK and protect firms from the fines and reputational damage which come with breaches.

The research was conducted by Censuswide with 500 compliance decision-makers, aged 18+, who are in crypto (exchanges, OTC traders), gaming (casinos, online betting platforms, high-street betting shops), property development and banks (including challenger banks) between May 26 and July 2, 2023. Censuswide abides by and employs members of the Market Research Society, which is based on the ESOMAR principles, and are members of The British Polling Council.

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About the author, Danielle Trigg

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