How technology is helping conveyancers tackle money laundering

Money laundering is a growing risk in the UK property market, as the Pandora papers demonstrate. The failure of some conveyancers and estate agents to properly verify buyers’ identities, and comply with the relevant AML regulations, means they risk supporting the laundering of dirty money.

New AI, Open Banking and facial recognition technology can automate and enhance ID and AML checks to reduce the risk of money laundering.  But conveyancers and other property professionals often face three barriers to adopting such technology.

So, to aid the take-up of the right technology, we’ve encouraged the government to take three crucial steps.

First, the government should be more consistent in its approach to AML and technology. Second, it should offer an incentive to encourage property professionals to adopt the right tools. Third, it should help ensure AML professionals know what tech will do the job to the required standards.

Barriers to adopting the right tech

We work with more than 500 law firms and many leading estate agents, so we see the barriers to adopting technology to tackle economic crime.

First, the government and its regulators are not currently consistent in how they suggest firms use technology to tackle money laundering.

For instance, some regulators offer specific guidance on how firms can adopt technology to conduct enhanced AML checks. Whereas other anti-money laundering supervisors merely note the supporting role tech can play. This creates confusion and lowers the rate of adoption.

Second, the government has not yet provided a carrot for property professionals to adopt technology for AML purposes. So, without a clear incentive, many conveyancers continue with their old methods on the basis they are enough to avoid a breach of regulations.

Third, while property professionals may understand that technology can enhance identity and AML checks, many are unsure of which providers do it to the required regulatory standard. So, without a uniform standard in digital ID and AML verification, it’s difficult for professionals to determine what tools are sufficient to protect their business and clients.

Increased risk of money laundering

The failure to remove these barriers to adopting the right technology has several significant implications.

Most importantly, the risk of money laundering in the UK property market has increased.

Last year, a joint report from HM Treasury and the Home Office assessed the risk of money laundering in the property market as high, up from medium. The increase was in large part because of the growth in ‘overseas buyers and cash flows into the UK property market’.

Estate agency risk was also increased from low to medium in the same report. The report noted weaknesses in anti-money laundering and counter-terrorist financing controls, limiting the mitigations against the risk of money laundering’ in the sector.

So, without the right technology, we face an increased risk of laundered money making its way into the UK property market.

What’s more, there are serious implications for conveyancers and estate agents that fall foul of their obligations. There have been a growing number of high-value and high-profile fines in recent years.

Such fines may push some firms out of business, jeopardise their international reputation and limit new business.

So, it’s in the interests of both the government and the UK’s property professionals to tackle money laundering once and for all.

Adopting the right tech

To encourage the take-up of the right tools, the government needs to take three steps.

First, to ensure a more consistent approach that encourages greater tech adoption, we would like to see regulators harmonise their AML guidance as much as possible.

In their guidance, regulators should emphasise how digital ID providers can reduce fraud and do a superior job to enhance customer confidence.

The government’s UK digital identify and attributes trust framework, if successful, will go a long way to harmonising requirements. In turn, this should lead to synchronisation between regulatory guidance. But more should be done immediately.

Second, HM Land Registry’s (HMLR) Digital ID Standard combined with a Safe Harbour for firms that use relevant e-ID technology has helped increase the take-up of digital ID technology in conveyancing.

In doing so, HMLR’s approach will help cut fraud risk and save conveyancers and their clients valuable time and money.

All regulators responsible for AML supervision should adopt a similar approach.

Third, both the government and industry must do more to promote the platforms and apps that conduct checks to the required standards.

Government should publish a list of criteria that the tech must provide, like what HMLR has done for digital ID.

As a start, all providers should be FCA regulated and use Open Banking, AI, facial biometric and cryptographic technology to conduct AML checks.

In taking these three steps, the government will help property professionals to adopt the right tools to tackle AML. In doing so, it will help reduce the risk of money laundering in the property market.

 

Sam Ruback is Head of Legal at Thirdfort

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