Are estate agents too trusting of long-term clients?…

There’s no question that trust is the bedrock of any longstanding client relationship. It is built on delivering on your promises and constantly proving your worth. As firms demonstrate their reliability to their clients, trust strengthens and fosters a mutual relationship. 

However, when it comes to regulatory compliance and the threat of financial crime, a shocking number of regulated firms continue to put their faith in these long-term client relationships instead of performing actual compliance checks on their clients.

In the latest SmartSearch survey, a worrying 41 percent of regulated firms in the finance, legal, accountancy and property sectors said they are confident that none of their clients are listed on sanction or PEP (politically-exposed person) lists purely because they have worked with them for a long time.

Meanwhile, more than a third (35%) of firms said it was because they trust their clients. This is almost three times as many as in last year’s survey (12%).

Most shocking

While firms in the finance sector were the worst offenders for relying on long-term client relationships (44%), property firms including estates agents weren’t far behind. Four-in-ten firms didn’t feel compliance checks were necessary because they had worked with their clients for a long time.

What makes the findings most shocking is it comes against a backdrop of the UK’s increasing sanction regime – brought into the spotlight by the Russian invasion of Ukraine nearly two years ago. While the news agenda may have moved on, thousands of UK sanctions still remain in place for Russian nationals and entities, as well more than 30 other countries on its hitlist. Recent reports suggest that firms who were caught out by Russian sanctions may be prepping for any future action against China.

For many estate agents, the idea of a possible sanctions match may feel far-fetched, especially if they have known the client for a long time. Almost two years on from the initial invasion, many regulated firms are still using their lack of dealings with Russian nationals as a defence. However, designated persons continue to utilise relatives and close associates at home and abroad to divest funds, transfer assets and protect their personal and commercial holdings.

Spotlight on estate agents

In fact, a red alert from the Joint Money Laundering Intelligence Taskforce highlighted this very issue. In particular, it shone the spotlight on legal professionals, financial advisers, intermediaries and estate agents as the most susceptible to becoming “enablers” for sanction evasion by forgoing important checks. The penalty for this is massive – beyond the financial punishment, the resource-sapping investigation and the reputational damage, there’s also the potential for criminal proceedings too.

The UK remains a key target for foreign investment in property, whether it is as an additional home, a property for children studying in the UK or purely for investment purposes. A study by a letting agency last year used a Freedom of Information request to determine that foreign investors and companies own as much as £84 billion of property in England and Wales. Without the necessary checks on both new and existing clients, agents could unknowingly create rat runs for sanction evasion and criminal activity.

In reality, fundamental compliance processes shouldn’t need to impact on client relationships. In fact, adopting a digital compliance strategy enables firms to turn an onerous task like robust sanction and PEP screening into a standard procedure that’s just part of both onboarding and ongoing client monitoring. Platforms such as SmartSearch utilise live data feeds to give users accurate international sanction information.

Not only is this beneficial with new customers, but if the data reveals a potential red flag for an existing client, the platform will automatically initiate enhanced due diligence and provide the user with all the necessary information. The need for manual intervention is minimised.

While it is true that trust is an important part of any relationship, how can you truly trust a client or anyone for that matter if you don’t have the complete picture. This is a fundamental principle of the Know Your Customer (KYC) requirements facing regulated firms. With tools such as electronic verification (EV), as well as real-time data and client monitoring, regulated firms don’t have to choose between critical compliance checks and long-term relationships or trust. A digital compliance strategy can offer peace of mind and do the heavy lifting in the background, while businesses focus on what they do best.