Industry views
30 Oct 2025
by Cindy van Niekerk

Financial Crime in Embedded Finance and Business Onboarding

What is the financial crime challenge?

The UK faces a £28.0 billion SME tax gap (HMRC Measuring Tax Gaps 2025), with small businesses accounting for 60% of all missing tax. Three interconnected fraud vectors exploit current systems:

  • Synthetic business entities exploit fragmented KYB, where each institution independently verifies the same business. Companies House data alone cannot confirm beneficial ownership, directorship legitimacy, or trading reality—enabling shell companies that appear compliant while facilitating tax evasion, money laundering, and payment diversion.
  • Hidden ownership networks remain invisible to point-in-time checks. Director networks span dozens of dissolved companies, yet each new entity passes initial KYB because verifiers lack cross-institutional intelligence. A single fraudulent director operates multiple synthetic entities simultaneously.
  • Embedded finance acceleration creates new attack surfaces. B2B financing, BNPL, and marketplace lending embedded into checkout flows enable speed-optimised onboarding that sacrifices verification depth. Real-time demands pressure approvals of marginal cases while integration complexities create blind spots.

The challenge: every institution duplicates expensive verification work while fraudsters exploit gaps between them. Legitimate SMEs face intrusive, repeated investigations while sophisticated fraudsters engineer entities to pass fragmented checks.

 

What is the role of technology in tackling this challenge?

Technology transforms financial crime prevention from cost centre to competitive advantage:

  • Reusable digital business identity eliminates duplicate verification and closes cross-institutional gaps. Cryptographically-secured credentials verified against multiple authoritative sources enable businesses to prove legitimacy once and reuse verification across institutions. Zero-knowledge proofs let SMEs demonstrate tax integrity without exposing sensitive data. This is architectural fraud prevention—synthetic entities cannot obtain credentials requiring multi-source triangulation.
  • AI-orchestrated continuous monitoring detects fraud patterns invisible to point-in-time checks. Traditional KYB asks, "Is this business legitimate today?" AI asks, "Do patterns across ownership, directorships, trading history, and financial behaviour indicate systematic fraud?" This identifies high-risk networks that human analysts miss while reducing false positives by 60%.
  • Open Data frameworks expand beyond Open Banking to incorporate utility bills, business rates, HMRC VAT returns, and commercial insurance—creating triangulated verification that synthetic entities cannot fake. Legitimate SMEs generate consistent data trails: electricity consumption matching business hours, water usage correlating with headcount, and business rates confirming address. When a business claims £2 million in revenue but utility consumption suggests an empty office, AI flags contradictions immediately. Utility integration provides passive continuous monitoring through automatic API flows, transforming verification from manual checks to algorithmic pattern recognition scaling at near-zero marginal cost.

 

What is the impact on FS institutions?

Digital business identity infrastructure determines competitive positioning:

  • Immediate operational gains: Reduced verification time and costs, leveraging reusable cross-industry data.
  • Predictive risk management: Continuous AI monitoring catches director network fraud, UBO conflicts, and registry changes before transactions complete—reducing loss provisions while enabling confident SME segment expansion.
  • Embedded finance scale: Instant underwriting on unknown businesses becomes possible through cryptographically verified credentials, allowing platforms to embed financial services while preventing synthetic entity fraud in the embedded finance opportunity.
  • Cross-border advantage: UK-verified business identity recognised for EU eIDAS compliance, GCC market entry, or African trade finance gives first-mover advantage in international embedded finance.

 

What is the policy ask?

  • Mandate interoperable standards aligned with UK DIATF and EU eIDAS 2.0 Organisational ID. Require acceptance of standardised, cryptographically-verified credentials with multi-source verification, continuous monitoring, and zero-knowledge proofs. Estonia's 23-year success proves government-backed standards drive adoption.
  • Establish a government-backed scheme integrating Companies House, HMRC, and GOV.UK Digital Identity Wallet. Public-private partnership—government provides authoritative data, private sector delivers innovation. The £28.0 billion tax gap creates compelling ROI: 10% fraud reduction pays for infrastructure within 18 months.
  • Incentivise adoption through regulatory relief and preferential treatment in government SME schemes. Phase out vulnerable approaches: by 2028, government support requires digital business identity; by 2030, institutions cannot rely solely on Companies House data.
  • Enable cross-border portability through mutual recognition with EU, GCC, and AfCFTA partners, positioning Britain as the gateway for global SME commerce.

 

Financial Services Programme activities

The techUK Financial Services programme connects tech firms, the FS industry, and regulators to ensure innovation and technology can be fully embraced. Through market engagement activities and events, we help to empower decision makers and aid collaboration.

 

Upcoming events

13 November 2025

Combatting Fraud: techUK's 2025 Report Launch Breakfast & Panel

London
18 November 2025

Tech and the City – AI in Financial Services

London Conference
25 November 2025

Scaling in...Insurance

Panel discussion

Latest news and insights 

Learn more and get involved

 

Financial Services updates

Sign-up to get the latest updates and opportunities from our Financial Services programme.

 

 

Here are the five reasons you should join the Financial Services programme.

Learn about the value members get from our work.

Download

Join techUK groups

techUK members can get involved in our work by joining our groups, and stay up to date with the latest meetings and opportunities in the programme.

Learn more

 

Become a techUK member

Our members develop strong networks, build meaningful partnerships and grow their businesses as we all work together to create a thriving environment where industry, government and stakeholders come together to realise the positive outcomes tech can deliver.

Learn more

Meet the team  

James Challinor

James Challinor

Head of Financial Services, techUK

James leads our financial services programme of activity. He works closely with member firms from across the sector to ensure innovation and technology are fully harnessed and embraced by both industry and regulators. 

Prior to joining us James worked at other business organisations including TheCityUK and the Confederation of British Industry (CBI) in roles focused on supporting the financial & related professional services eco-system, with a particular focus on financial technology and market infrastructure. 

He holds degrees from King's College London and Oxford Brookes University, and outside of work enjoys socialising, exercising, and travelling to new locations.

Email:
[email protected]
LinkedIn:
https://www.linkedin.com/in/james-challinor-105212177/

Read lessmore

Lucas Banach

Lucas Banach

Programme Assistant, Data Centres, Climate, Environment and Sustainability, Market Access, techUK

Lucas Banach is Programme Assistant at techUK, he works on a range of programmes including Data Centres; Climate, Environment & Sustainability; Market Access and Smart Infrastructure and Systems.

Before that Lucas who joined in 2008, held various roles in our organisation, which included his role as Office Executive, Groups and Concept Viability Administrator, and most recently he worked as Programme Executive for Public Sector. He has a postgraduate degree in International Relations from the Andrzej Frycz-Modrzewski Cracow University.

Email:
[email protected]
Phone:
020 7331 2006
Twitter:
@techUK
Website:
www.techuk.org
LinkedIn:
https://www.linkedin.com/in/lucas-banach-50139650

Read lessmore

 

 

 

Authors

Cindy van Niekerk

founder, Umazi

Return to listing