Global: Financial Institutions Grapple with $206.1 Billion in Compliance Costs

LexisNexis Risk Solutions has unveiled its annual True Cost of Financial Crime Compliance Report, delving into the financial burdens and challenges faced by financial institutions as they adapt to evolving financial crime compliance regulations.

The report gathers insights from 1,181 financial crime compliance professionals representing small, medium, and large companies across the U.S./Canada, APAC, EMEA, and LATAM.

Here are some of the key findings from the LexisNexis Risk Solutions True Cost of Financial Crime Compliance Report – 2023:

Artificial Intelligence (AI) Making an Impact: While some industries are still exploring how AI and machine learning (ML) will affect their operations, 71% of financial crime compliance professionals report that their organizations are already leveraging advanced analytics to enhance data utilization. Moreover, 72% confirm the use of analytics and AI to bolster their compliance processes. However, historical issues like data quality, data silos, outdated systems, and a lack of internal collaboration can result in avoidable compliance activities and costs.

EMEA Leads in Compliance Costs: The study highlights that financial institutions and their customers in the EMEA region continue to bear a higher financial crime compliance expense compared to other regions, exceeding the U.S./Canada by 39.8%. This disparity is partly attributed to the increasing complexity of compliance requirements. Globally, 78% of organizations (especially 80% in EMEA) cite complex regulations and sanctions as impediments to their business operations. In contrast, APAC and LATAM, while incurring significant compliance expenses, are relatively more cost-effective regions. APAC’s financial compliance expenses amount to 74.5% of those in the U.S./Canada, while LATAM’s costs are 24.7% by comparison.

Adapting for Future Challenges: CEOs, vice presidents, and directors at financial institutions worldwide are not resting on their laurels. Several new initiatives add to the complexity they face in meeting financial crime compliance requirements. Nevertheless, 85% of these institutions prioritize enhancing the customer experience. This reiterates their commitment to building trust and ensuring customer satisfaction, even amid growing financial threats. A significant part of these efforts revolves around optimizing the efficiency and effectiveness of financial crime compliance, particularly concerning payments. Globally, 74% of institutions view this as a critical or high-priority endeavor.

Grayson Clarke, Senior Vice President at LexisNexis Risk Solutions, emphasized, “The financial impact of crime affects both businesses’ financial statements and consumers’ wallets. Legislators and regulators collaborate tirelessly with financial institutions to establish necessary mandates for the common good. However, these efforts come at a cost. Our report underscores that financial institutions are making significant investments to stay compliant with financial crime regulations. Effective collaboration within these institutions is crucial for enhancing the customer experience while managing these costs. Leveraging emerging technologies alongside existing solutions empowers institutions to achieve their goals and deliver optimal customer outcomes.”