Annual financial crime compliance costs in the U.S. are up 95% for mid/large financial institutions since the beginning of the COVID-19 pandemic to a total of almost $41 billion according to the LexisNexis® Risk Solutions 2021 True Cost of Financial Crime Compliance Study. The total overall for U.S. and Canadian financial institutions is almost $50 billion. Overburdened compliance teams are contending with rising costs and widespread operational disruptions that contribute to decreased productivity and onboarding delays. Let’s explore the drivers impacting today’s compliance outlook and strategies to support an optimal response.
Compliance costs continue on a double-digit upward trajectory
A combination of digital transformation demands, pandemic-driven operational impacts and an increasingly complex regulatory and threat environment contributed to sharply escalating compliance costs for U.S. and Canadian financial institutions.
- Cost impacts are most pronounced for mid/large U.S. financial institutions
- The average annual cost of financial crime compliance per institution equals $27.8 million, a 36% increase from 2020
Cost increases in both countries are driven by labor spend. Continuing COVID-19 obstacles, growing transaction volumes, increasing regulatory obligations and evolving criminal threats mean more resources are needed to handle expanded compliance requirements and extended due diligence times. The average distribution of financial crime compliance operations costs in the U.S. is 56% Labor/37% Technology.
Adding more labor resources is not a sustainable solution. Businesses must find ways to efficiently augment existing labor resources, simplify due diligence screening, reduce processing times and accelerate onboarding.
Due diligence data challenges impact productivity and increase risk exposure
A lack of available and accurate Know Your Customer (KYC) data for business account due diligence is cited by study participants as an ongoing issue creating productivity delays and compounding compliance costs.
Top KYC due diligence challenges for U.S. financial institutions:
- Effective KYC risk profiling of the business entity
- Lack of due diligence data about a business
- Lack of up-to-date information on the business
Data deficiencies impact the effectiveness of the initial risk profile of a new business account and also interfere with the efficacy of ongoing monitoring and audit processes down the line. Access to robust and reliable KYC data helps clarify critical relationships and identify Ultimate Beneficial Ownership information from the outset to improve risk management across the relationship.
Complex criminal threats drive up compliance costs
Digital transformation introduces opportunities for financial criminals to leverage anonymity and transaction speeds to evade detection and escalate attack velocity. Complex threat vectors that thrive in digital ecosystems are increasing financial crime compliance costs. Financial crime involving digital payments had a greater impact on compliance costs vs. other financial crimes.
Digital threats require a level of immediate risk visibility fueled by dynamic insight into digital identity intelligence, device and location data and behavior patterns. Risk-responsive compliance tools can help strengthen effective compliance across the multiple customer touchpoints within a digital ecosystem.
Minimize compliance disruptions with an optimized strategy
The inherent challenges of digital commerce, rigorous regulatory requirements and complex criminal threats will continue to escalate and evolve in the year ahead. Our compliance experts can help tailor a solution approach to support an agile, more risk-responsive financial crime compliance strategy that positions your business to avoid compliance risks and capture competitive advantage.
Connect with us to learn more about creating a sustainable financial crime compliance strategy that supports core business goals.