The need for regulated firms to ditch outdated and time-consuming compliance processes has intensified due to the increasing regulatory burden.
This is the opinion of digital-compliance business SmartSearch.
SmartSearch chief operating officer (COO) Collette Allen feels “that regulated firms need to modernise their approach to compliance to not only relieve growing regulatory pressures, but to maximise available resources”.
A report form Thomson Reuters in 2023 discovered that the majority of financial-services firms expected an increase in regulatory activity. Managing cost pressures and balancing compliance demands are also seen as key challenges.
Additionally, KPMG’s Regulatory Barometer revealed increasing scrutiny around environmental, social and governance (ESG), sustainable finance and payment systems are resulting in greater pressure on financial services.
Allen said: “There is no question that UK regulated firms continue to face significant pressure.
“Recent findings certainly mirror the feedback we are hearing on the ground – firms are at breaking point as compliance demands only increase, leading to difficulties when it comes to allocating resources effectively and keeping up with the evolving requirements.
“In truth, many firms have been slow to adopt a digital-compliance strategy and instead maintain time-consuming and resource-heavy manual checks, particularly in their anti-money laundering (AML) processes.
“Such checks help drive up the cost of doing business and, in the case of these critical compliance checks, expose the business to a higher risk of financial crime.
“Firms that have integrated technology are able to automate and strengthen what were onerous compliance tasks, such as identity verification, sanction screening and source-of-funds checks.
“Allowing technology to do much of the heavy lifting helps minimise human error and utilise staff and resources much more effectively.”
A survey from SmartSearch found 48% of regulated firms across legal, finance, property and accountancy sectors still use manual checks in some way to verify a customer’s identity.
Over a third (34%) said they do so because it is the only way to “truly guarantee” a person’s identity.
However, in 2020 the Money Laundering and Terrorist Financing Act recommended firms use electronic verification.
None of this is actually about how compliance works and how it could help businesses if it is done properly. It is all about processes.
The industry and the compliance people within it need to think about what compliance is and how it should work. Processes are not even the outputs. Quality is what everyone should be aiming at and that is being lost in this discussion.