AI-driven fraud is pushing financial crime controls to breaking point, and regulated firms face a difficult paradox: monitor customers more closely, and risk burying their compliance teams under a mountain of meaningless alerts.
Fraudsters are increasingly using AI to build convincing synthetic identities, complete with plausible addresses and employment histories stitched together from publicly available data. Despite this, many firms have yet to modernise their defences. According to the 2026 SmartSearch Compliance Survey, more than half of firms across legal and financial services still carry out identity checks manually.
The pressure is compounded by rising regulatory expectations and by sanctions lists, watchlists and other risk indicators that now change more often than ever. As a result, ongoing monitoring has become central to keeping an accurate picture of customer risk over the full lifetime of a relationship.
Under Regulation 28(11) of the UK Money Laundering Regulations 2017, firms are required to monitor business relationships on an ongoing basis. That means scrutinising transactions and activity, and keeping customer due diligence information current and relevant. In practice, this covers transaction monitoring, screening against sanctions and PEP lists, refreshing due diligence, applying enhanced checks to higher-risk clients and reporting suspicious activity.
The principle is straightforward: a customer deemed low risk two years ago could today be a politically exposed person, a sanctioned individual or someone whose transactions no longer fit their profile.
Yet more monitoring carries a hidden cost. Detection systems are intentionally sensitive, because flagging a legitimate transaction is preferable to missing a criminal one. The consequence is that ordinary behaviour, such as a small business receiving regular payments from overseas suppliers, or a customer moving funds between their own accounts, can look suspicious and trigger an alert.
Each of these false positives demands analyst time to review, investigate, document and close. Industry analyses suggest that up to 90% of alerts produced by traditional transaction monitoring systems turn out to be false positives. While the figure varies by institution and system, the effect is consistent. With UK businesses spending an estimated £33.9bn a year on AML and financial crime compliance, false positives represent one of the biggest sources of waste, diverting skilled staff away from genuinely risky cases.
The solution is not to monitor less but to monitor more intelligently. Daily monitoring builds on ongoing monitoring by creating an automated cycle focused on what has actually changed in a customer’s record. Crucially, daily monitoring does not need to mean daily alerts. An alert should be raised because something has changed, not simply because a customer has been screened again.
SmartSearch has built its approach around this principle. The RegTech firm tracks changes in customer status, including PEP and sanctions status, updating its watchlist data daily and rescreening monitored customers every night. According to the company, this can cut unnecessary PEP, sanctions and adverse media hits to below 1%, freeing compliance teams to concentrate on changes that may signal real risk.
Read the full post here by SmartSearch.
Copyright © 2026 RegTech Analyst
Copyright © 2026 RegTech Analyst
