The results shared in the new report have been prepared after conducting an extensive survey of 1,015 financial crime compliance decision-makers at established financial institutions such as banks, investment companies, funds managers, and insurers.
The expected total cost of financial crime compliance across various financial institutions reached $213.9 billion this year, exceeding the $180.9 billion reported during 2020. Most of the considerable YoY increase is due to financial activities taking place in Western Europe and the US.
The key decision-makers who participated in the research study are responsible for managing financial crime compliance procedures like sanctions monitoring, know your customer (KYC) remediation, anti-money laundering (AML) and transaction monitoring.
The main findings from the LexisNexis report are shared below:
Western Countries Continue to Spend Highest on Compliance – Western European countries and the United States (together) accounted for 82.7% of global total estimated costs.
Germany and the US reportedly cover or account for the majority of cost increases at $9.6 billion and $8.8 billion respectively. Germany notably outsized all other nations by a significant amount.
Mid to large financial institutions / service providers have been leading this growth where all regions, with the exception of the Middle East and South Africa, reported double-digit percentage growth in costs related to ensuring compliance.
Less Consensus on Operational Challenges – During the past several years, there has been general consensus on the top-ranked compliance issues within financial institutions. But there was considerably less uniformity in 2021’s survey.
Customer risk profiling, sanctions screening, regulatory reporting, identifying politically exposed persons (PEPs), KYC for account onboarding and efficient alerts resolution have been similarly ranked as significant challenges.
Different regions reported varying degrees to which particular challenges are more serious, however, less consensus was seen on the top or main challenges to compliance.
Pandemic Impact – The COVID-19 crisis has reportedly left a major imprint on compliance officials and their departments, which has made existing issues even worse and has also contributed to a rise in time and funds required to ensure due diligence.
Mid and large companies based in Canada and the United States and certain areas in Latin America (LatAm) reported considerable COVID-related expense increases.
The main operational challenges became even more prominent or significant in these particular markets since awareness about the pandemic became more widespread. The report from LexisNexis reveals that there’s been increased alert volumes and suspicious transactions, inefficiencies with alert resolution and due diligence, significantly more manual work required and limitations with proper risk profiling/sanctions screening/PEP identification.
Technology Investment Leads to Better Outcomes – Financial institutions adopting and implementing tech solutions to ensure financial crime compliance have generally been more prepared and less affected overall by rising regulatory requirements and the pandemiic.
When compared to companies that channeled considerably more of their yearly compliance costs to labor, those that set aside costs more toward tech are now reporting smaller YoY financial crime compliance operations cost increases, reduced overall costs per full-time worker and fewer COVID-related issues.
Leslie Bailey, VP, Financial Crime Compliance for LexisNexis Risk Solutions, stated:
“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 behaviors in real time.”