According to LexisNexis’ latest True Cost of Financial Crime Compliance Study – APAC* edition, all financial institutions face the same financial crime compliance challenges in 2020. The estimate puts the annual projected cost of compliance at US$12.06 Billion in 2020, with financial institutions in Singapore and the Philippines experiencing the highest year-on-year increase.
* Editor’s note. The study was marked APAC but it only covered four markets: India, Indonesia, the Philippines and Singapore
Naturally, LexisNexis claims that firms that use technology to lead their compliance strategies are more likely to realize both financial and process benefits.
Compliance professionals indicate that when technology has a larger share of budget, the business has improved risk management and more robust data to help support more informed customer relations. These tech-forward firms are also buffered from excessive increases in compliance costs driven by regulatory needs.
Focusing on technology also helps compliance officers deal with challenges posed by the global pandemic. Survey respondents suggest that more technology investment elevates human resources to focus on more process-critical tasks such as alert remediation.
Reduces costs and challenges with tech
The report finds that financial institutions that allocate more financial crime compliance expenditures to technology realize smaller increases in cost compared to those with lower technology spend. Firms with above average compliance spend on technology solutions are less challenged during the customer acquisition process: 39% of mid to large firms indicated this as a challenge compared to 70% of firms who had below average technology expenditure.
Firms across the markets surveyed that allocate a higher percentage of compliance spend to technology have comparatively lower overall compliance cost at an average of $14.6 million annually compared to $18.1 million for those dedicating higher spend to labour. Financial institutions that allocate a larger share of their financial crime compliance costs to technology also have lower costs at $61,300 per compliance professional annually compared to $115,400 for firms that allocate more for labour.
“COVID-19 has undoubtedly impacted financial crime compliance operations and costs for financial institutions across the region,” said
Douglas Wolfson, director, financial crime compliance APAC for LexisNexis Risk Solutions said that the pandemic compounded the current set of Know Your Customer (KYC), alert resolution and sanction screening challenges and contributes conclusively to significant cost increases among all banks. “Additional regional and international regulations will continue to spur the need for greater internal controls and more comprehensive risk-management technology platforms that help ensure compliance and lessen financial crime compliance cost,” he added.
A large majority of financial firms in the survey expect COVID-19 to further impact compliance cost over the next 12 to 24 months. Sixty nine percent of firms expect increased costs will involve technology spend with only 31% seeing it as a driver of labour costs.
Compliance professionals report that the pandemic has negatively impacted on these business areas and issues as follows:
- Customer risk profiling – 63%
- KYC for account onboarding – 74%
- Sanctions screening – 75%
- Efficient resolution of alerts – 63%
- Positive identification of sanctioned entities or politically exposed persons (PEPs) – 58%
- Resource efficiencies – 65%