Newly released survey data from SmartSearch have raised concerns over the commitment of cryptocurrency firms when it comes to effective customer verification. According to the findings, most aren’t properly checking customer lists against sanctions or politically exposed persons (PEP) records.
The findings reveal that barely one in five crypto firms (17%) consistently verify new customers. Furthermore, half of them admit to conducting such checks only sporadically.
Crypto Firms Failing on Customer Verification
The comprehensive survey, conducted by digital compliance firm SmartSearch, sheds light on various compliance practices within a spectrum of industries, including high-street and challenger banks, cryptocurrency platforms, property developers, and gambling companies.
The research, carried out by Censuswide, involved 500 UK compliance decision-makers aged 18 and above. The survey took place between May 26 and July 2, 2023.
The data show that just over 42% of over-the-counter (OTC) traders have adjusted their compliance procedures since the imposition of sanctions on Russia, following its invasion of Ukraine. Crypto exchanges are doing slightly better, with over 52% adopting additional measures.
But critics will say it is still not enough, and businesses risk putting themselves outside of the law. Martin Cheek, managing director of SmartSearch, said in a statement:
“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.”
In recent years, the Financial Conduct Authority and law enforcement have redoubled their efforts to prevent sanctions evasion, particularly with regard to cryptocurrency and digital assets.
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This month, the National Crime Agency (NCA), Britain’s FBI, announced it was hiring personnel to investigate crypto crimes. The Digital Assets Disclosure Officer role will work within its Complex Financial Crime Team (CFCT).
A 2020 UK Law Ensures Crypto Businesses Know Their Customers
Like most countries, the UK has been grappling with crypto’s ability to obscure those behind financial transactions. In 2020, the country passed the updated Money Laundering and Terrorist Finance Act.
The law strengthens regulations and provisions related to combating money laundering and terrorist financing. It also expands due diligence requirements to include virtual currency exchange providers and custodian wallet providers.
A previous survey by SmartSearch found that money laundering is a growing problem in crypto. More than a quarter (28%) of crypto firms have reported a rise in the number of Suspicious Activity Reports over the previous six months.
It is a worrying climate for crypto firms, which face huge fines and possibly jail time for breaking the law. Understandably, over two-thirds (69%) of UK crypto businesses are worried about breaking anti-money laundering rules.
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