SmartSearch’s Compliance Report, based on 1,000 responses from leaders across UK finance, property, legal and accounting firms, revealed techniques used by financial criminals were evolving faster than the processes designed to stop them.
Some 54% of firms said they carried out manual identity checks, with finance and property firms most reliant on these tools, representing 55% of organisations. Some 54% of legal firms use manual processes for identification verification, while this was 52% of accountancy firms.
This is despite 87% of firms acknowledging that around half of their manual compliance tasks could be automated by existing technologies.
The scale of AI threat
The vast majority – 91% of firms – said emerging technologies posed a significant risk to their compliance programmes and a third said AI-driven decision-making tools were their biggest technological threat.
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Just 40% of regulated firms use or plan to use AI for enhanced transaction monitoring to spot unusual patterns of activity or potential fraud. Further, just 43% of firms use AI for Know Your Customer (KYC) and Customer Due Diligence checks.
The research also found that just 30% use or plan to use AI to resolve the alerts generated when a customer matches a list of politically exposed persons or sanctioned individuals, or is subject to international sanctions.
Stricter regulation ahead
Phil Cotter, CEO of SmartSearch, said: “Trying to catch AI-generated fraud with a manual checklist is like sending a fax to stop a cyber attack. The criminals targeting UK firms are deploying AI to build synthetic identities and exploit gaps at a speed and scale that human review simply cannot match.
“The threat has moved on. For too many firms, the tools haven’t, and that presents a corporate risk that is growing and evolving by the day.”
SmartSearch said firms would soon be under pressure to take action, particularly as the Financial Conduct Authority (FCA) prepares to become the sole anti-money laundering (AML) supervisor by 2027.
Changes to Money Laundering Regulations are also expected later this year, with stricter requirements around beneficial ownership.
Cotter added: “Directors will soon face personal criminal liability for fraud that filters through compliance cracks. At that point, ‘we had a process’ is not enough. Firms need to prove it worked.
“Automated, electronic verification can conduct individual checks in seconds and business checks in minutes, cross-referencing data at a scale and speed no manual process can match. That is the only way to demonstrate, with confidence, that reasonable steps were taken to prevent fraud from getting through.”
Earlier this month, conveyancers and brokers told Mortgage Solutions that AI fakes could leave lenders vulnerable.
