More than half of the costs were accrued to labor, followed by demographic issues.
In a LexisNexis Risk Solutions survey of 898 decision-makers overseeing financial crime compliance and compliance operations in the Asia Pacific (APAC) region, Europe, the Middle East and Africa (EMEA), Latin America (LATAM) (including Mexico) and the US and Canada, the US$181bn total cost brought to light some pertinent findings:
- Labor is single largest driver of the high compliance costs.
A number of factors contribute to higher financial crime compliance costs, including increasingly complex regulations, data privacy limitations, sanctions violations and the level of skilled labor. The global average distribution of compliance costs are 57% labor, 40% technology and 3% others, with Europe, the Middle East and Africa (EMEA) leading labor cost spend at 62%. In the Asia-pacific region, labor represents a significant component of financial crime compliance costs, averaging 54% of costs for those surveyed and scaling upwards for larger firms. Labor costs have also risen an average of 9% – 10% in the past 24 months across APAC. - Europe and US hit hardest by costs
The largest regional markets for financial crime compliance are Europe and the United States. Significantly more financial institutions in these markets—more than 6,000 in the United States alone—drove higher total spend on financial crime compliance, compared to other regions. Average annual financial crime compliance costs were highest for mid/large sized financial institutions (more than US$10 billion in total assets) in the UK, Germany, France, Italy and the Netherlands. - Due diligence efforts take longer and increase costs
Complying with increasingly complex regulations caused financial firms in Europe to take longer than any other market to complete business accounting due diligence which increased the cost of financial crime compliance overall. For example, the average time required to onboard a mid-sized corporation had increased from 21 hours in 2017 to 36 hours in 2019. - Non-Bank payment providers were a source of risk
According to financial institution professionals surveyed, non-bank payment providers created additional compliance challenges and risks for financial firms, particularly in LATAM and Canada. Across all regions, however, the negative impact was broad, including increased alert volumes, more corresponding banking risk, greater compliance team stress, and higher technology and labor costs. - Compliance challenges negatively impact productivity and employee retention
Financial crime compliance challenges and issues have had a negative impact on productivity at financial institutions, particularly in EMEA and LATAM. Across all regions, costs had risen 7% annually in the past two years, with financial crime compliance processes and burdens negatively affecting productivity and new customer acquisition efforts. Additionally, compliance teams were stressed to a degree where managers worried about retaining skilled professionals—67% of compliance decision-makers were concerned with job satisfaction within their workforce.
Said Daniel Wager, vice president, global financial crime compliance strategy, LexisNexis Risk Solutions: “As criminals become more sophisticated, a multi-layered solution approach to financial crime compliance is crucial to facilitating a more cost-effective, efficient compliance approach, as well as one that provides benefit to 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.”
Wager noted that there is now increased recognition among financial institutions that financial crime compliance initiatives provide broader benefits. As compliance workforces grow, utilizing the right technologies allows organizations to decrease the cost of compliance per full-time equivalent (FTE, the labor component) and mitigate costs associated with lost business due to increased friction at onboarding. “Keeping FTE costs lower is essential to profitability, since labor tends to account for significant increased compliance expenses year-over-year.”
