Financial Institutions (FIs) across the globe are facing the perfect storm in their ongoing quest to combat financial crime.

As technology removes global commerce barriers, the opportunities for cross-border money laundering and financial crime soar. When coupled with heightened and exacting multi-national regulatory governance and stressed, overworked compliance teams, FIs are forced to cope with the conundrum of meeting compliance obligations while managing evolving global risk realities.

The stakes are high and so are the costs. The total projected cost of financial crime compliance across the key countries surveyed in APAC, EMEA, LATAM and North America is $180.9 billion. The average annual cost of financial crime compliance per organization is proportionately higher for mid/large financial institutions across the U.K. ($53.8 million), Germany ($46.1 million), France ($41 million), Italy ($44.4 million), and the Netherlands ($49.3 million) compared to those in other global markets.

Labor, unsurprisingly, consumes the most sizeable portion of compliance spend—57% on average. The complex compliance environment impacts rising human resources costs in multiple ways. Of those surveyed in the True Cost of Financial Crime Compliance Study conducted by LexisNexis® Risk Solutions, 53% of respondents indicate compliance processes have a negative impact on productivity and 55% indicate compliance processes have a negative impact on customer acquisition.

Compliance challenges abound and so do opportunities

While FIs have identified and recognize the leading drivers for compliance—meeting the standards for regulatory compliance, minimizing reputational risk, completing business de-risking and improving business results high among them—they are also hobbled by a multitude of challenges.

Of survey respondents, 56% said that customer risk profiling was a key challenge, followed by 55% naming sanctions screening and 48% pointing to efficient alert resolution. Positive identification of Politically Exposed Persons (PEPS), Know Your Customer (KYC) processes for onboarding and regulatory reporting also contribute to the obstacles to compliance.

The goal of balancing optimal compliance with core business objectives remains elusive at a time when the surveyed counties in APAC, EMEA, LATAM and North America are reporting average 12-month increases in compliance costs ranging from 4.5% (APAC) to 8% (LATAM). With financial crime compliance costs reaching a double-digit percentage increase over the past two years, a layered approach to financial crime compliance technology is crucial to facilitate a more cost-effective and efficient compliance approach—particularly in tackling rising labor costs. Doing so leads to efficiencies.

Adding more labor resources is not a sustainable strategy

The sheer complexity of today’s environment calls for a highly sophisticated solution strategy for verification of identity and financial crime compliance.

That being said, too many FIs are simply adding more labor resources to tackle increasingly complicated challenges. Expanded global compliance demands and increased screening requirements have resulted in alert volumes trending up, an average of 12% globally. Accordingly, compliance teams must spend more hours remediating alerts. On a global basis, teams are dedicating 11 hours to clearing AML transaction monitoring alerts, 11 hours to periodic watchlists alerts and 10 hours to sanctions alerts.

It is small wonder, then, that highly skilled financial crime resources are in high demand and human resources costs continue to soar. Yet despite strong salaries, compliance concerns are still increasing with an average of 67% of firms surveyed agreeing they are concerned about the job satisfaction of their compliance team. With labor costs gobbling up a sizeable portion of compliance spend—57% on average in the surveyed countries (54% APAC, 62% EMEA, 47% LATAM and 53% North America), there needs to be a better way forward.

Escalating global pressures demand a multi-layered, end-to-end solution approach

The answer is moving to more targeted solutions. Innovative technology and top-quality digital and physical risk intelligence are essential tools to effectively assess the financial crime compliance risks posed by individuals and businesses while simultaneously identifying inherent transaction risks. Additionally, it significantly decreases the cost of compliance per Full Time Equivalent (FTE) and reduces opportunity costs associated with onboarding friction and lost business.

The overall average cost of financial crime compliance per FTE (annual cost in thousands) is $141 using less-layered technologies versus $85 for more layered technologies. Percentage costs per labor, average cost of labor and average number of compliance staff all experience a significant reduction when a more layered technology is implemented. Indeed, the effectiveness of the entire compliance team is bolstered.

Even more importantly, a multi-layered cost-efficient compliance program benefits your enterprise as a whole. By combining advanced analytics and unmatched global identity intelligence with innovative technologies like Machine Learning (ML), Artificial Intelligence (AI) and technology automation, you achieve a precise risk perspective. As a result, your FI is quickly able to identify relevant risk and complete critical financial crime compliance processes.

Aligning end-to-end critical compliance solutions may very well be the key to enhancing critical compliance workflows across the enterprise and the entire customer lifecycle without disrupting crucial day-to-day business.

For more information, download the full Global Report or call 1-800-953-2877.

Source: LexisNexis® Risk Solutions True Cost of Financial Crime Compliance – Global Report, April 2020. All currency references in this report are based on USD. For the purposes of this study, Mexico is included with LATAM instead of North America.