Record investment as financial crime toll increases

This year will see a record amount of investment in financial crime compliance as criminals become ever more sophisticated.

LexisNexis Risk Solutions has released its annual True Cost of Financial Crime Compliance Global Report, which surveyed over 1,000 financial crime compliance decision makers at financial institutions including banks, investment, asset management and insurance firms globally.

The study found the projected total cost of financial crime compliance across all financial institutions reached $213.9 billion in 2021, surpassing the $180.9 billion recorded in 2020. The majority of this sizeable year-over-year increase is represented by Western Europe and the United States.

Leslie Bailey, vice president, financial crime compliance for LexisNexis Risk Solutions, said, “Criminals will never cease to become more sophisticated, but a multi-layered solution approach to financial crime compliance can facilitate a more cost-effective, efficient compliance approach, as well as one that benefits the larger organization. Financial institutions should investigate both the physical and digital identity attributes of their customers, leveraging data analytics to assess risks and behaviours in real time.”

Bailey continued: “There is now increased recognition among financial institutions that financial crime compliance initiatives provide broader benefits. Utilising the right technologies as compliance workforces grow allows the team to focus on higher-value, more complex compliance tasks that require skilled human analysis.”

The study found Western nations continue to spend highest on compliance. Western European countries and the U.S. continue to represent 82.7% of global total projected costs. Germany and the U.S. bear the bulk of cost increases at $9.6 billion and $8.8 billion respectively with Germany outsizing all other countries by a considerable amount. Mid to large financial institutions lead this growth where all regions, excluding South Africa and the Middle East, show double digit percentage increases in compliance costs.

“In previous years there has been consensus on the top two or three ranked compliance challenges within financial institutions,” it added. “There is less uniformity in this year’s survey. Customer risk profiling, sanctions screening, regulatory reporting, identifying politically exposed persons (PEPs), KYC for account onboarding and efficient alerts resolution are all similarly ranked as key challenges. Different regions see varying degrees to which certain challenges are more heightened, however.”

Wayne Johnson, CEO, Encompass Corporation said: “Regulation technology will continue to play a significant role in the fight against financial crime, particularly as new legislation and regulatory guidance is born from the pandemic, remote working, and the popularisation of new payments technologies, such as cryptocurrency and blockchain.

“In fact, its impact is evident within this report, which has found that those financial institutions implementing solutions to support compliance have been more prepared and less impacted overall by increasing regulatory pressures and the implications of COVID-19.

“We know that prioritising compliance has wide-ranging benefits for institutions and, looking at the wider regulatory landscape, research co-authored by Dr Henry Balani, Encompass’ Head of Delivery and Customer Success, highlighted its effects, finding that Anti-Money Laundering (AML) directives actually increase the value of banks.

“It also remains clear that wealthier countries, such as those in Western Europe and Northern America, have better systems in place and more money allocated to tackling financial crime. Money laundering is a worldwide issue, and thus we must establish universal regulation standards that transcend country borders.

“RegTech will be key here, as it not only boosts efficiency and effectiveness of processes and adherence by automating processes with sophisticated solutions, but it also offers a more economical and adaptive answer to complying with new obligations and tackling financial crime.”

The study found the projected total cost of financial crime compliance across all financial institutions reached $213.9 billion in 2021, surpassing the $180.9 billion recorded in 2020. The majority of this sizeable year-over-year increase is represented by Western Europe and the United States.

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