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Fighting financial crime: How the property sector can keep up with evolving regulations
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Global Banking and Finance Review
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By Phil Cotter, CEO, SmartSearch
Selling and buying property is an ideal cover to carry out money laundering, with criminals investing £6.7bn of suspicious funds into UK property since 2016. Data from HM Land Registry also shows the number of attempted property frauds has increased by 70% in the last five years. The property industry’s attractiveness to financial criminals means it also faces strict regulations to implement robust anti-money laundering procedures that can identify and prevent criminal activity.
Businesses battle to strike the balance between keeping up with an ever-evolving regulatory landscape and delivering a seamless experience for customers when they are buying or selling their home. Speed was one of the two main complaints from consumers in a recent survey on their estate agent experiences, with 89% of respondents also ranking exceptional customer service as the most important factor when choosing a service provider. Property businesses need a way to help them meet these demands while also keeping up with and complying with new and emerging regulation.
Constantly changing goalposts
There has been a recent rise in AML regulation and legislation implemented in the UK that directly affects the property industry. The UK government’s Economic Crime and Corporate Transparency Act came into force in March, with one of its key functions to improve transparency on the ownership of UK property by overseas entities. Companies that fail to take appropriate measures to prevent fraud in this space may also be prosecuted for criminal wrongdoing.
In the same month, HM Treasury also published an open consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations (MLRs). The aim is to deliver greater clarity to help bolster compliance, with adjustments expected to be made to customer due diligence processes to make them more proportionate and effective.
Of course, property businesses will welcome any measures to help them fight against financial crime and improved clarity on the scope of the MLRs. However, keeping up with this ever-evolving regulation landscape with a constant stream of new rules is challenging – especially when coupled with a need to deliver stellar customer experience.
A new approach is required
Traditionally, the property sector has relied on manual processes to carry out sufficient customer due diligence and meet their AML, Know Your Customer and Know Your Business regulatory requirements. As financial criminals become more sophisticated and regulations proliferate, these methods are no longer sufficient for property businesses to carry out their necessary checks to verify buyers’ and sellers’ identities and confirm source of funds.
This is because manual checks are time-consuming, taking away staff time from tasks that add value to the customer experience. Perhaps this is why only 5% of businesses in the property sector conduct daily client checks. Manual checks are also open to human error, increasing the risk of convincingly faked identity documents or sophisticated concealment of a sanctioned or politically-exposed-person (PEP) being involved in a sale or purchase slip through the net.
As the regulatory landscape continues to evolve, the compliance burden on regulated businesses increases. Staff face the difficult balance of understanding any given new rule, its implication on their business, how processes must be altered to align with the change, and then also ensure they carry out the necessary due diligence to avoid non-compliance. This often results in a lengthier onboarding process and requires staff to spend more time on compliance that could otherwise have been spent on tasks that add value to the customer experience.
Improving existing systems
AML, KYC and KYB technology can help businesses in the property sector to better protect themselves and their customers from financial crime, ensuring they retain a clean and compliant position. By harnessing technology and eliminating manual processes, property businesses will also be able to significantly reduce the time taken to conduct AML checks and generate reports. This will give staff time to reinvest back into customer interaction and strike a better balance between compliance, customer onboarding and experience.
Property companies should prioritise solutions that offer customer identity authentication, with integrated capabilities that leverage global databases to check corporate entities, individual credit, and legal record information. This will ensure that companies are always carrying out the necessary due diligence they need to on their customers, even as regulations evolve.
Anti-money laundering (AML) refers to laws and regulations designed to prevent the practice of generating income through illegal actions, ensuring that financial institutions monitor and report suspicious activities.
Customer due diligence (CDD) is the process of verifying the identity of clients to assess their risk level and ensure compliance with anti-money laundering regulations.
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