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Global cost of financial crime compliance reaches US$213.9 billion

Chris Hamblin, Editor, London, 22 June 2021

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LexisNexis Risk Solutions has released its annual True Cost of Financial Crime Compliance Global Report.

The results, derived from a comprehensive survey of 1,015 financial crime compliance decision makers at financial institutions (including banks, investment firms, asset managers and insurance carriers) all over the world. The projected total cost of financial crime compliance throughout all financial institutions reached US$213.9 billion this year, surpassing the $180.9 billion recorded in 2020. Most of this year-over-year increase is represented by Western Europe and the United States.

The decision makers who took part in the study oversee financial crime compliance processes such as sanctions monitoring, know-your-customer (KYC) 'remediation' (putting things right), anti-money-laundering (AML) control and transaction monitoring.

Where are the increases happening?

Western countries are still spending the most on compliance, with Western Europe and the USA accounting for 82.7% of global total projected costs. Germany and the USA bear the bulk of cost increases (at $9.6 billion and $8.8 billion respectively) with Germany outspending all other countries by a considerable amount. Medium-to-large financial institutions are experiencing most of this growth. All regions (excluding South Africa and the Middle East) have increased their compliance costs to the tune of more than 10%.

In previous years, there has been some consensus between firms about their top two-or-three ranked compliance challenges. There is less uniformity in this year’s survey. The profiling of customer-related risks, sanctions screening, regulatory reporting, the identification of politically exposed persons or PEPs, KYC for account onboarding and efficient alerts resolution are all similarly ranked as key challenges. Different regions, however, think differently about these problems.

Pandemic blues

The never-ending pandemic has left a significant imprint on compliance departments. It has exacerbated existing problems and has led to an increase in the time and money that firms need to check customers' backgrounds and other things. Medium-and-large-sized firms in the US and Canada and parts of Latin America have experienced sizeable pandemic-related increases in compliance costs. Alert volumes and suspicious transactions have gone up, as have inefficiencies to do with the resolution of alerts and various checking, manual work and improper risk profiling/sanctions screening/PEP identification.

Technology is the key

LexisNexis is a major software vendor and it therefore comes as no surprise that the great lesson that it draws from its study is that financial institutions that use IT to support their financial crime compliance efforts have been more prepared and less devastated by mounting regulatory demands and the Coronavirus. It states: "Compared to firms that distributed more of their annual compliance costs to labour, those that allocated costs more toward technology are seeing smaller year-on-year financial crime compliance operations cost increases, lower costs per full-time employee and fewer pandemic-related challenges.

“Financial institutions across APAC [the Asia-Pacific region] that allocate more financial crime compliance expenditure to technology realise smaller increases in cost...firms with above average compliance spend on technology solutions are less challenged during the customer acquisition process.

“A large majority of APAC financial institutions surveyed expect the COVID-19 pandemic to further increase compliance costs over the next 12 to 24 months.”

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