ATLANTA, Oct. 21, 2020 /PRNewswire/ — LexisNexis® Risk Solutions released the results of its 2020 True Cost of Financial Crime Compliance Study – U.S. and Canada Edition. The survey of compliance professionals identifies the drivers and influencers affecting financial crime compliance and highlights spending trends. This year, the study also explores the range of challenges that financial institutions (FIs) have experienced during the COVID-19 pandemic.
The survey finds that the cost of financial crime compliance has risen sharply since 2019, up to a projected $42 billion across U.S. and Canadian financial firms this year. This is a sizeable 33% jump from 2019, when the total projected cost was $31.5 billion. The study projects cost in 2020 to be $35.2 billion in the U.S. alone, with Canadian FIs contributing $6.8 billion.
Compliance departments at both large and small FIs have experienced a wide variety of difficulties during the pandemic and resultant remote working period. Financial crime compliance professionals in the U.S. attribute an average of 23% of financial crime compliance cost increases to the COVID-19 impact. This stems partially from the implementation of the Paycheck Protection Program (PPP) and increased manual labor costs for FIs to detect lending-related financial crimes such as money laundering. Survey respondents anticipate that the ongoing pandemic-related pressures facing compliance departments will also drive increased compliance costs in the future.
Operational challenges arising from COVID-19 protocols and subsequent remote working requirements have also negatively impacted the effectiveness and efficiency of key compliance activities. The figures below represent respondents who reported a moderate to significant negative impact on these key financial crime compliance processes.
- 91% reported a negative impact on customer risk profiling
- 83% reported a negative impact on sanctions screening
- 78% reported a negative impact on KYC for account onboarding
- 74% reported a negative impact on efficient resolution of alerts
- 61% reported a negative impact on positive identification of sanctioned entities or politically exposed persons (PEPs)
Technology Lowers Costs
Despite the challenges and costs facing compliance departments, FIs who invested in technology solutions to support financial crime compliance have experienced lower cost increases and fewer negative impacts from COVID-19. Year-over-year compliance cost increases are lower among those allocating more spend to technology and these FIs also realize greater efficiencies. Larger FIs (over $10 billion in assets) in the U.S. and Canada who allocated at least 50% of their compliance costs to technology will spend $5 million less on average in annual costs in 2020 than FIs who allocated 35% or less of those costs to technology.
«Given the events of 2020, it is no surprise that compliance industry professionals felt a sizable change in compliance operations,» said Leslie Bailey, senior director of financial crime compliance strategy for LexisNexis Risk Solutions. «A multi-faceted approach that includes efficient technology, intuitive analytics and extensive global risk intelligence can help financial institutions optimize their resources and navigate these changes without compromising the customer experience.»
FIs that have invested in compliance solutions will be better prepared to deal with the new normal and any further sudden changes. As the cost of doing business rises in the COVID-19 environment, the added cost of compliance may become a negative tipping point, with businesses experiencing diminishing returns as companies add more labor resources.
The study surveyed 150 decision-makers in the U.S. and Canada who oversee financial crime compliance processes at their companies, including but not limited to sanctions monitoring, Know Your Customer (KYC) remediation and anti-money laundering (AML) transaction monitoring. Organizations included banks, investment firms, asset management firms and insurance firms. The total annual cost of compliance across firms was calculated using survey data on financial crime costs, as a percent of total assets and secondary data that provides the total assets for all FIs in the U.S. and Canada. The spend amount was generated by multiplying the average percent allocated to financial crime costs by the reported total asset amount.
Download a copy of the 2020 True Cost of Financial Crime Compliance Study – United States and Canada Edition. For a discussion of the study’s key findings, Association of Certified Anti-Money Laundering Specialists (ACAMS) members may register for a webinar featuring Daniel Wager, vice president, global financial crime compliance strategy for LexisNexis Risk Solutions on Friday, October 23, 2020 at 1:00 pm ET.
About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. 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 across industries. For more information, please visit www.risk.lexisnexis.com and www.relx.com.
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