Why Sixty Percent of UK Compliance Issues Surface in Due Diligence

 

Due Diligence Services

Corporate due diligence services play a critical role in helping organisations identify risks before they escalate into regulatory failures. In the UK, recent evidence suggests that sixty percent of compliance issues emerge during due diligence processes because this is when firms first scrutinise transactional data, third party relationships, supply chains, customer profiles, and governance structures. As regulatory standards tighten across financial crime, anti‑money laundering, data protection and operational resilience requirements, a growing proportion of corporate compliance failures are identified at this early risk assessment stage.

This trend highlights the strategic importance of corporate due diligence services not only as a risk mitigation tool but also as a foundational compliance control that informs broader governance frameworks and operational decision making. Compliance failures that surface during due diligence often reflect deeper systemic weaknesses in internal controls, inadequate risk assessment capabilities, and fragmented compliance technologies. Understanding why most compliance issues are first detected during due diligence offers organisations insights into where to invest resources, how to strengthen risk management protocols, and why compliance optimisation must be embedded throughout the enterprise.

Understanding the UK Compliance Landscape in 2025 and 2026

The UK’s regulatory environment in 2025–2026 is marked by heightened scrutiny, more complex obligations, and a fragmented risk landscape that places pressure on firms of all sizes. According to a recent PwC Global Compliance Survey 2025, 91 percent of UK organisations report that compliance complexity has increased, and 75 percent say compliance challenges have negatively impacted profitability. Additionally, 68 percent believe that AI will have a net positive effect on reducing compliance risks, although technology alone is not seen as sufficient without human oversight and process integration.

Alongside the strategic shifts in compliance expectations, firms face quantitative challenges in the specifics of anti‑money laundering and customer verification. Data from the ICAEW’s 2024/25 AML Supervision Report shows that in a sample of 1,185 firms, roughly 20 percent were non‑compliant or only partially compliant, with common issues including ineffective risk documentation (12.6 percent), insufficient identification procedures (11.9 percent), and inadequate verification processes (10.2 percent). 

One of the most alarming quantifiable compliance gaps relates to ongoing monitoring. Multiple surveys have revealed that more than 90 percent of regulated UK firms do not carry out daily client monitoring, leaving them exposed to sanctions breaches and financial crime. This type of daily customer due diligence deficiency often only becomes visible during comprehensive due diligence reviews, underlining the connection between oversight practices and compliance outcomes.

Why Compliance Issues Emerge in Due Diligence

1. First Point of Structured Review

Due diligence is often the first time a company subjects its transactional, third party, financial crime and customer data to structured analytical scrutiny. Whether in mergers and acquisitions, vendor onboarding, ongoing relationships with high risk clients, or regulatory audits, due diligence forces organisations to confront gaps in record keeping, policies, and process implementation. In many cases, superficial or siloed controls that worked day‑to‑day are found to be inadequate in these deeper analytical contexts.

2. Evolution of Regulatory Expectations

Regulatory expectations are continually changing. For example, the UK government has introduced stricter anti‑money laundering (AML) regulations that expand the reach of enhanced due diligence for high‑risk customers, coupled with tougher beneficial ownership reporting obligations. When firms apply legacy compliance processes in new due diligence contexts, the gaps between actual practice and regulatory expectations become more visible.

3. Technology Integration Challenges

Organisations increasingly rely on AI and technology to scale due diligence processes, but implementation gaps persist. In a global survey conducted by LSEG Risk Intelligence, 87 percent of firms expect their budgets for Know Your Customer Enhanced Due Diligence (KYC EDD) to rise, and 90 percent say the volume of EDD requests has increased over the last three years. Yet, technology without mature governance and human oversight can create blind spots that surface during compliance assessments.

4. Complex Third Party and Supply Chain Risks

Due diligence increasingly involves assessing multi‑tier supply chains and indirect third party relationships. Recent surveys show compliance teams struggling to extend due diligence beyond direct vendors because of data limitations and a lack of tools or staffing to manage deeper analysis.

These complexities mean that deeper layers of risk, such as indirect supply chain dependencies, hidden beneficial ownership, and legacy contractual obligations, are uncovered only during comprehensive due diligence exercises.

Case Studies in Compliance Failures Discovered Through Due Diligence

Anti‑Money Laundering Oversight

In the ICAEW AML study, larger firms were more likely to be found non‑compliant during formal due diligence reviews, suggesting that scale and complexity present unique challenges to maintaining consistent compliance.

Monitoring Deficiencies

The high rate of firms failing to conduct daily client screening (more than 92 percent) exposes significant weaknesses in ongoing monitoring, a central compliance requirement in AML and sanctions regimes. These shortcomings are most frequently detected when organisations examine comprehensive client profiles and transaction histories during due diligence.

Internal Control Gaps

In PwC’s survey, less than half of tax executives felt well‑placed to handle regulatory change and 54 percent identified technology use as a primary factor impacting compliance talent strategies. These indicators point to systemic shortcomings that often only come to light when due diligence processes examine how policies are enacted across the enterprise.

Strategic Implications for UK Businesses

Understanding why compliance issues surface predominantly during due diligence has immediate implications:

Elevating Risk Management Prior to Due Diligence

Organisations should invest in strengthening controls, updating policies, and modernising compliance technologies before due diligence triggers intensive scrutiny. Early improvements in risk assessment and documentation help reduce the likelihood of finding material deficiencies later.

Embedding Compliance Across the Business Lifecycle

Rather than treating compliance as a periodic audit activity, it must be embedded throughout business processes, from customer onboarding to contract renewals and third party management. Continuous compliance models help decrease the volume of issues that first surface in due diligence.

Investing in Skills and Data Capabilities

As complexity rises, so does the need for compliance professionals who understand regulatory requirements and can manage advanced technology tools. Firms must prioritise capability‑building, data integration, and analytic functions to support proactive compliance.

The Role of Corporate Due Diligence Services in Prevention

High quality corporate due diligence services are essential for preventing and detecting compliance issues before they escalate. These services go beyond basic checks to incorporate risk profiling, advanced screening, third party risk evaluation, and continuous monitoring. When performed effectively, robust due diligence reduces the incidence of compliance violations, financial penalties, reputational harm, and operational bottlenecks that can disrupt strategic initiatives.

Firms engaging expert due diligence support benefit from specialised insights into regulatory trends, data analytics that highlight emerging risks, and structured frameworks for translating findings into actionable improvements. With regulators in the UK applying more frequent and thorough investigations, proactive due diligence is no longer optional; it is a cornerstone of sustainable compliance.

Strengthening Compliance Through Early Detection

As the UK compliance environment becomes more complex, the fact that sixty percent of compliance issues surface in due diligence underscores both a challenge and an opportunity for organisations. Early detection through structured, robust due diligence helps firms identify systemic weaknesses, adapt to evolving regulatory expectations, and maintain competitive advantage through trusted, compliant operations.

To meet these demands, businesses must embrace comprehensive corporate due diligence services, invest in data‑driven risk management, and cultivate a culture of compliance that is integrated across people, technology and processes. Only then can UK organisations navigate the intricacies of modern regulation with confidence and resilience in 2025 and beyond.

Corporate due diligence services remain a strategic imperative for organisations seeking to transform compliance from a point of failure into a source of insight and competitive differentiation.