But there are several ways to conduct such due diligence. So, what are they, and what are the benefits and disadvantages?
Traditional or manual approaches to client due diligence involve the estate agent manually checking the client’s passport, identification or bank statement.
However, such manual processes have significant drawbacks. First, is the estate agent trained and able to spot the difference between genuine and fake documents?
Fake documents pose an increasing risk, given the rise of high-quality fake documents that are now available online.
Second, can the agent accurately verify the passport photo to the individual. The agent is solely responsible for judging that the identity document is genuine, and that the person presents a true likeness to the image. No one is infallible and human error is a common problem.
Third, not only does collating manual documents take time but agents are limited to the documents presented. They cannot check multiple sources or databases of information to see what’s real or not.
Overall, this slows down the due diligence process for the estate agent, costing time and money.
Making the best use of technology
Meanwhile, a digital approach can help enhance the authenticity, security and confidentiality of client due diligence.
For instance, electronic identification and verification may include address, document, biometric and near-field communication screening, in addition to screening for politically exposed persons and sanctions.
Agents can act confidently by checking a range of sources and documents online in just minutes. They will know with certainty that the document is genuine and that the person in front of them is the legal holder.
However, some risks remain. For instance, firms may become over-reliant on tech and fail to conduct due diligence properly.
Second, agents must read and review the results when they use technology. A firm can have the best technology in place. Still, unless the results are interpreted and used as a basis for the risk assessment, the firm may find they are not compliant. Third, agents must be familiar with the system to understand the results.
To mitigate these risks, agents can put controls in place. One such control is dip sampling, where the agent double checks past files for accuracy and understanding.
A further mitigation is training staff to demonstrate an understanding of how to input data into a system, the types of data used, what the outputs mean and how the system complies with regulations.
Leading technology providers will help firms to do this.
As with most processes, the best approach is a combination of both traditional and digital methods.
Estate agents should use the latest digital tools to conduct more thorough checks, which take them less time and deliver a competitive advantage. But they should supplement this with manual mitigation, such as dip testing and training, to ensure they do not become complacent.
Harriet Holmes is AML services manager at Thirdfort