More than half of regulated firms are struggling to identify the individuals who ultimately own or control the businesses they deal with, according to new research from compliance technology provider SmartSearch.
SmartSearch’s 2026 Compliance Report found that 52% of firms across the financial services, property, legal and accountancy sectors experience difficulties verifying ultimate beneficial ownership (UBO), highlighting what it describes as a significant vulnerability in the UK’s anti-financial crime framework.
The research, based on a survey of 1,000 senior decision-makers conducted by Censuswide, suggests many firms are finding it increasingly difficult to look beyond corporate structures and identify the individuals who ultimately control businesses.
According to the report, complex ownership arrangements involving layered holding companies, nominee structures and overseas entities can make it challenging to establish who is behind a business relationship. This can increase the risk of sanctioned individuals or those linked to organised crime entering into commercial relationships without being detected.
The report also found that 54% of identity verification checks are still conducted manually, despite the growing sophistication of financial crime.
EMERGING THREATS
When asked to identify their biggest compliance challenge, 24% of respondents pointed to the abuse of digital identity and certified ID processes.
A further 22% highlighted synthetic identity fraud and the misuse of personally identifiable information, where genuine personal data is combined with fabricated details to create false identities capable of passing standard verification checks.
Cryptocurrency-related money laundering was cited by 19% of respondents as their greatest compliance concern, while 13% identified terrorist financing as the most significant challenge.
Phil Cotter, chief executive of SmartSearch, said: “Identity is the foundation every business relationship is built on, but criminals are now exploiting the gaps between who a company says it is and who actually controls it.
“A firm that cannot credibly establish ultimate beneficial ownership is not just carrying a compliance risk; they are leaving the door open to sanctioned individuals, bad actors and the proceeds of organised crime.”
“Those risks are becoming harder to spot because criminals are no longer just forging documents. They are manufacturing synthetic identities, manipulating digital verification processes and hiding behind complex ownership structures, all designed to defeat checks that rely on what can be seen on the surface.
“Firms still relying on manual processes are bringing paper to a digital fight, and the ability to verify identities and beneficial ownership quickly, accurately and at scale is now what separates the businesses criminals target from the ones they avoid.”
REGULATORY CHANGES AHEAD
The report highlights forthcoming regulatory changes that are expected to place greater emphasis on beneficial ownership checks.
Proposed amendments to the Money Laundering Regulations are expected to require firms to identify and verify the individuals who ultimately own or control the entities they transact with. At the same time, enforcement measures linked to the Economic Crime and Corporate Transparency Act (ECCTA) are expected to increase scrutiny of overseas entities operating in the UK.
SmartSearch also noted the implications of the Failure to Prevent Fraud offence, under which organisations may face corporate criminal liability if they cannot demonstrate reasonable fraud prevention procedures.
COMMERCIAL CONSEQUENCES
The research found that concerns extend beyond regulatory compliance.
Almost nine in 10 respondents (87%) said they would stop working with a brand following a confirmed case of money laundering, fraud or non-compliance. Meanwhile, 77% said the reputational risk associated with a major fraud scandal was a significant concern for their organisation.
Cotter said: “Firms are entering an era where weak verification carries real consequences. If you can’t prove who ultimately owns or controls the businesses you deal with, you are leaving yourself exposed to prosecution, reputational damage and commercial fallout.
“Compliance cannot be a one-off event. The businesses doing this well are continuously monitoring, with a clear audit trail of every step they took to identify and mitigate compliance and fraud risks.
“The firms gambling on outdated processes to catch modern fraud threats are risking their company, their clients and their directors’ liberty.”
