True Cost of Financial Crime Compliance Study
Reveals Organizations Prioritizing Cost Reduction While Ensuring
Regulatory Adherence
- Financial crime compliance costs have risen for 99% of
financial institutions
- 70% of financial institutions prioritize cutting compliance
costs in next 12 months
- Cryptocurrencies and AI techniques are now being
adopted by criminals as tools for illicit activities
ATLANTA, Feb. 21,
2024 /PRNewswire/ -- LexisNexis® Risk Solutions
released the findings of its latest True Cost of Financial Crime
Compliance Study – U.S. and Canada. The commissioned study, conducted
by Forrester Consulting, reveals that financial crime compliance
costs have increased for 99% of financial institutions. The total
cost of financial crime compliance in the U.S. and Canada has reached U.S.$61 billion.
Mid and large-sized financial institutions (holding more than
$10 billion in assets) must reduce
costs while complying with regulations, with 44% identifying the
escalation of financial crime regulations and regulatory
expectations as the primary factor driving increases in compliance
costs. Financial institutions of all sizes are concentrating on
cost reduction, with 70% giving priority to cutting costs in the
next 12 months.
The challenge of keeping up with the complex sanctions
environment is intensifying, leading financial institutions to
confront a growing screening workload. At 83% of mid and
large-sized organizations and 87% of small organizations (holding
less than $10 billion in assets), the
number of screening alerts has increased.
Key findings from the study:
- Technology costs are driving increases in
expenses for financial institutions, emphasizing the
substantial investment required to meet stringent compliance
requirements. Specifically, 79% of organizations noticed rises in
technology costs related to compliance/know-your-customer (KYC)
software in the past 12 months, while technology costs associated
with networks, systems and remote work have increased at 75% of
businesses.
- Seventy-eight percent of small financial institutions
witnessed higher increases in compliance costs related to labor
compared to their mid and large-sized counterparts (63%).
Conversely, mid and large-sized financial institutions were more
likely to experience higher cost escalations for technology,
particularly in compliance with KYC software (82%) and external
costs associated with outsourcing (79%).
- Cryptocurrencies, digital payments and AI
technologies are now also emerging as tools for illicit
activities. Organizations are grappling with the impact of
these sophisticated criminal methodologies within an already
complex regulatory landscape. When asked about the types of
financial crime they had observed significant increases of more
than 20% in the past 12 months, 22% of companies identified
financial crime involving cryptocurrencies, while 22%
reported heightened use of AI.
"As the cost of financial crime compliance rises for
organizations across the U.S. and Canada, organizations must take a strategic
approach to financial crime compliance," said Matt Michaud, Global Head of Financial Crime
Compliance at LexisNexis Risk Solutions. "Skilled in-house
compliance teams play a crucial role, but businesses should be
actively seeking ways to reduce labor costs while simultaneously
improving compliance efficiency. Organizations also need to
actively counter cybercriminals exploiting artificial intelligence,
cryptocurrencies and digital channels. Financial
institutions must proactively equip themselves with comprehensive
data sets, advanced AI/ML-based compliance models and robust
analytics within their financial crime compliance solutions to
swiftly identify new crime patterns."
Recommendations for combating financial crime:
- Balance compliance effectiveness with customer
experience. Financial institutions are grappling to acquire and
retain customers in the digital era. The winners will be those that
can deliver seamless customer onboarding and transaction
experiences. Striking the right balance between customer experience
and financial crime compliance efficiency involves streamlining KYC
and onboarding processes, reducing false positives and allowing
legitimate transactions to proceed without inconveniencing the
customer.
- Embrace new technologies to counter emerging financial
crimes. Criminals are increasingly using new technologies for
their activities. To outpace cybercriminals and counter their more
sophisticated financial crime, in addition to deploying advanced
AI- and ML-based compliance models, financial institutions should
leverage privacy-preserving technologies and advanced analytics to
swiftly identify new crime patterns.
- Employ compliance tools and analytics to manage costs and
enhance efficiency. Labor costs rank highest in financial
crime compliance spending. While in-house compliance teams with
expertise are crucial, partnering with an external technology
provider will alleviate some labor costs and enhance compliance
efficiency. To identify the right partner, organizations should
focus on their future-fit capabilities, including proven expertise
in digital financial services, ease of integration, robust data
management, advanced analytics, lightweight software-as-a-service
deployments and the ability to balance effectiveness with customer
experience.
Download the latest True Cost of Financial Crime Compliance
Study – U.S. and Canada.
Methodology
Forrester conducted a global online survey of 1,181 senior
decision-makers at financial institutions to evaluate the cost,
current state and challenges presented by financial crime
compliance operations. The study began in May 2023 and was completed in June 2023. One hundred sixty (160) survey
participants were from the U.S. and Canada. The survey asked participants about
organizational priorities, exposure to financial crime activities,
financial crime spending and factors driving an increase in
financial crime costs, challenges in compliance screening
operations, the benefits of financial crime operations and future
implementation plans.
About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data,
sophisticated analytics platforms and technology solutions to
provide insights that help businesses across multiple industries
and governmental entities reduce risk and improve decisions to
benefit people around the globe. Headquartered in metro
Atlanta, Georgia, we have offices
throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a
global provider of information-based analytics and decision tools
for professional and business customers. For more information,
please visit LexisNexis Risk Solutions and RELX.
Media Contact:
Ade O'Connor
+44 7890 918 264
ade.o'connor@lexisnexisrisk.com
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