More than half of identity verification checks in UK finance and property businesses are still being carried out manually, despite widespread concern about the growing use of AI in financial crime.
That is according to SmartSearch’s 2026 Compliance Report, which surveyed 1,000 senior decision-makers across regulated firms in finance, property, legal and accounting.
The research suggests that while awareness of the threat is high, adoption of more advanced anti-fraud tools remains limited. Overall, 91% of firms said emerging technologies represent a high risk to their compliance programmes, while 33% identified AI-driven decision-making tools as the single biggest technological threat.
For property professionals, the findings point to a growing gap between the sophistication of fraud risks and the systems being used to detect them. SmartSearch said 54% of identity verification checks are still completed manually, with finance and property firms the most reliant on those processes at 55%.
The report also found that 87% of firms would end a business relationship after a confirmed case of money laundering, fraud or non-compliance. Even so, many are still depending on manual checks as a first line of defence.
One of the main concerns highlighted is synthetic identity fraud, where criminals combine genuine and fabricated personal data to create false identities capable of passing standard verification processes. SmartSearch said AI has made this easier to scale, allowing fraudsters to generate large numbers of convincing fake profiles and test verification systems more quickly.
Use of AI by regulated firms remains relatively limited. Just 43% said they use, or plan to use, AI for Know Your Customer and customer due diligence checks. Only 40% use, or plan to use, it for enhanced transaction monitoring and ongoing risk assessment.
Adoption is lower still in sanctions and politically exposed persons screening. Only 30% said they use, or plan to use, AI to deal with alerts generated when customers match sanctions or PEP lists.
At the same time, 87% of firms said up to half of their manual and repetitive compliance work could already be automated using existing technology.
Phil Cotter, chief executive of SmartSearch, said: “Trying to catch AI-generated fraud with a manual checklist is like sending a fax to stop a cyberattack.
“The criminals targeting UK firms are deploying AI to build synthetic identities and exploit gaps at a speed and scale that human review simply cannot match.”
He said: “The threat has moved on. For too many firms, the tools haven’t and that presents a corporate risk that is growing and evolving by the day.”
The report argues that the pressure on firms is set to increase as regulation tightens. SmartSearch said changes expected to anti-money laundering rules will place more emphasis on beneficial ownership checks, while further enforcement under the Economic Crime and Corporate Transparency Act is intended to make ownership structures more transparent.
It also pointed to the forthcoming failure to prevent fraud offence, which will expose organisations to criminal liability where they cannot show they had reasonable fraud prevention procedures in place.
Cotter added: “Directors will soon face personal criminal liability for fraud that filters through compliance cracks. At that point, ‘we had a process’ is not enough.
“Firms need to prove it worked. Automated, electronic verification can conduct individual checks in seconds and business checks in minutes, cross-referencing data at a scale and speed no manual process can match.”
