Financial services firms in the U.S. and Canada are spending over half of their financial crime compliance budgets on labor costs. As regulatory requirements and compliance demands increase in scope and complexity, are financial institutions realizing adequate return on their investment? This article explores how labor resources fit within compliance regimens using findings from the LexisNexis® Risk Solutions 2019 True Cost of AML Compliance Study for United States and Canada.

Labor expenses consume the biggest bite of the compliance budget

Most banks consider their compliance experts as one of their most valuable frontline risk management resources. U.S. and Canadian financial services firms annually spend $31.5 billion on overall compliance costs. Labor costs consume more than half of these budgets with U.S. financial institutions dedicating 54% to labor costs and Canadian firms following closely at 52%. The average number of Full Time Equivalent (FTE) staff employed in overall Anti-Money Laundering (AML) compliance operations at a typical institution is 57 employees. Compliance teams – especially those members with specific levels of expertise – play a critical role in facilitating an optimal financial crime compliance workflow, yet they are a finite and costly resource. As the regulatory climate continues to become more stringent and requirements escalate, adding more human resources to keep pace isn’t a sustainable strategy.

Today’s compliance environment exacerbates strains on productivity and job satisfaction

The combination of well-networked financial criminals and complex (often overlapping), global regulations is a volatile one for even the strongest compliance team to navigate. Compliance activities are becoming an impediment to day-to-day operations. Expanding regulatory expectations demand time and causes delays that drain compliance teams’ focus on strategic, high-value activities. Our study found the average time required by financial services firms in the U.S. and Canada to clear various alerts ranged between 3-6 hours. Close to 54% of our study respondents reported AML compliance demands have a moderate to large negative impact on productivity. The toll of compliance is adding up which translates into wasted time and money — and even more concerning — missed opportunities to proactively identify risky relationships. Talent retention is also a concern as 68% of respondents are somewhat to very concerned about the job satisfaction of their compliance staff. The annual average number of hours of lost productivity per FTE compliance analyst due to job dissatisfaction is 26 and 29 hours in in the U.S. and Canada, respectively. Strong compliance programs protect against regulatory fines and reputational damage. An effective program helps firms build viable relationships that drive revenue. Finding a way through the increasing obstacles in today’s financial crime compliance environment is integral to enterprise success.

The right tools help balance compliance realities and protect your biggest compliance investment

Technology plays a vital role in helping financial institutions more effectively utilize existing compliance experts and efficiently allocate both compliance and enterprise resources. Targeted tools that increase efficiency and automate initial compliance tasks augment human decisioning and free-up highly-skilled team members to focus on higher-value activities and complex compliance decisions. Technology tools also streamline access to current and highly-relevant risk insights which saves time, reduces redundancies and improves visibility for high-risk decisions. Results from our study illustrate the positive efficiency benefits and cost synergies that the right combination of labor and technology deliver. Financial institutions that used 4 or more technologies/services had an average cost of compliance per FTE of $78K while firms that utilized 1 or no technologies/services spent an average of $140K. Labor costs as a percentage of overall compliance costs also decreased to 48% for firms using four or more newer technologies/services while firms utilizing one or no technologies/services attributed 59% of their compliance costs to labor.

Optimal compliance technology and robust risk intelligence bridges the divides arising from the escalating demands of today’s complex compliance environment. Empowering critical labor resources with comprehensive tools allows your compliance team to work at optimal levels and contribute to a more effective financial crime compliance program. Investing in a multi-layered technology approach enables your business to realize higher value from your most valuable resource: compliance experts – the foundation of your entire financial crime compliance strategy.

Read the full LexisNexis® Risk Solutions 2019 True Cost of AML Compliance Study for United States and Canada.

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