Global Financial Crime Compliance Costs For Financial Institutions Over $206 Billion: LexisNexis

The worldwide financial crime compliance costs for financial institutions have reached $206.1 billion, with 98% of institutions reporting an increase in such costs in the past 12 months, according to the True Cost of Financial Crime Compliance Report by data and analytics company LexisNexis Risk Solutions.

The cost is comparable to more than 12% of global research and development expenditure and equates to $3.33 per month for each working-age individual in the world.

The report noted that the shifting technological and economic environment has changed the compliance landscape for financial institutions. The shift to digital banking has amplified financial institutions’ exposure to crimes, with more than half of survey respondents reporting a significant increase in financial crimes involving digital payments (59%), cryptocurrencies (58%), and AI technologies (56%).

With regard to cost drivers, 38% of institutions indicated that increasing financial crime regulations and regulatory expectations were the most significant factors driving an increase in financial crime compliance costs.

The findings reflect the perspectives of 1,181 professionals in financial crime compliance from companies across the U.S./Canada, Asia-Pacific, Europe, the Middle East and Africa, and Latin America.

AI Leaves Its Mark

While certain industries are still determining the scale of the influence of artificial intelligence and machine learning, 71% of professionals in financial crime compliance indicated that their organisations are already enhancing data utilisation through advanced analytics. Additionally, 72% confirmed that they employ analytics and AI to enhance their compliance procedures.

However, problems with data quality, data silos, outdated legacy systems, and a lack of internal collaboration can create compliance activity and increase expenditure, the report noted. 

EMEA Remains High-Cost Centre For Financial Crime Compliance

The report showed that EMEA financial institutions and their customers continue to incur more substantial expenses for financial crime compliance than those in other regions. The overall cost of financial crime compliance in EMEA surpassed that of the U.S. and Canada by 39.8%.

In contrast, APAC and LATAM are comparatively more cost-effective regions. The financial compliance expenses in APAC amounted to 74.5% of those in the U.S. and Canada, while LATAM's costs are 24.7% in comparison. Globally, 78% of organisations and 80% in EMEA indicated that the intricate network of regulations and sanctions acts as a constraint on their business operations.

EMEA had the highest total cost at $85 billion, and LATAM had the lowest at $15 billion. U.S./Canada had an overall financial crime compliance expense of $61 billion, while APAC’s was $45 billion.

Prioritising Compliance And Customer Experience

The report noted that there are multiple initiatives for financial institutions that add to the ongoing complexity they face in meeting financial crime compliance requirements. However, 85% of financial institutions placed enhancing customer experience at the top of the list of priority initiatives.

A substantial emphasis of financial institutions revolves around optimising the efficiency and efficacy of financial crime compliance concerning payments. Globally, 74% of institutions identified this as a critical or high-priority endeavour.

Financial institutions recognise the role of governance and compliance in ensuring stability, transparency, and ethical conduct. Survey respondents noted that they are focusing on strengthening governance (83%) and meeting regulatory compliance requirements (82%).

Financial institutions are also looking to increase their operational resilience (80%) to better withstand disruptions, recover from challenges, and maintain continuity. They are equally focused on optimising their compliance costs (80%) to improve profitability, remain agile, and gain a competitive advantage.

"Financial institutions are making significant investments to stay compliant with financial crime regulations. Effective collaboration within these institutions is pivotal for enhancing the customer experience while managing these costs," noted Grayson Clarke, senior vice president, LexisNexis Risk Solutions. "Leveraging emerging technologies alongside existing solutions can empower institutions to achieve their objectives and deliver optimal customer outcomes," Clarke added.