Study: Financial Crime Compliance Costs Rise 18% in 2020 | Item
the Real Global Cost of Compliance 2020 The report found that the largest increases in compliance costs have occurred in Western Europe, particularly Germany, and the United States.
Global costs were estimated at $ 180.9 billion in 2019. The 2020 compliance spending figure of $ 213.9 billion represents an increase of 18%.
The report interviewed 1,015 financial crime compliance decision makers at financial institutions around the world, including banks, as well as investment, asset management and insurance companies. These decision makers have indicated that they oversee financial crime compliance processes, such as sanction oversight, know-your-customer (KYC) remediation, anti-money laundering, and transaction monitoring. .
The bulk of the financial crime compliance spending – $ 150.6 billion – studied in the survey took place in Western European countries such as the UK, France, Germany, Netherlands, Italy, Baltic States, Poland, Czech Republic and Hungary. The United States and Canada followed with $ 42 billion.
Financial crime compliance spending in the United States increased 33% in 2020, compared to the previous year’s survey results. Spending also increased significantly in Canada (33%), Italy (27%), the Netherlands (22%), Germany (20%) and France (18%).
The total increase in spending was highest in Germany ($ 9.6 billion more in 2020) and the United States ($ 8.8 billion).
Some countries – Chile (61%), the Philippines (44%) and South Africa (43%) – experienced huge spikes in compliance costs, but overall costs have remained relatively low. Double-digit increases in compliance spending occurred in all of the countries surveyed.
Compliance spending in other regions lags far behind North America and Western Europe. In Asia-Pacific, companies spent $ 12.1 billion, followed by Latin America ($ 5.9 billion), the Middle East ($ 3.4 billion) and South Africa ($ 3.3 billion).
A handful of countries with highly regulated financial systems, including China, Japan, Australia, New Zealand, Spain, Sweden and Denmark, were not examined in the study. A spokesperson for LexisNexis Risk Solutions said the survey selected “a sample of countries from each region based on where its business is focused, while trying to ensure that the largest financial centers and / or those with high risk of financial crime are represented “.
While there was consensus among respondents that costs are increasing in all of the markets studied, they did not agree on the factors that determine compliance costs. Client Risk Profiling, Sanction Filtering, Regulatory Reporting, Politically Exposed Person Identification (PEP), KYC for Account Integration, and Effective Alert Resolution were all categorized similarly by respondents as key challenges, according to the survey.
The pandemic has played a role in increasing compliance costs, but its effects have been uneven across regions and company sizes. Mid-to-large U.S. financial service providers were much more likely to experience dramatic increases in compliance costs in part because of the pandemic, respondents said. Some costs associated with the pandemic stem from increased alert volumes and suspicious transactions, ineffective alert resolution and due diligence, more manual work, and limitations with risk profiling / appropriate sanction screening / PEP identification, according to the investigation.
In the US and Canada, the top financial crime compliance challenge was sanction screening (65%), while in Western Europe it was the client risk profile (53%) . In the Asia-Pacific region, which included India, Indonesia, Singapore and the Philippines, the main challenge was KYC (58%).
The survey indicated that US companies are also preparing for a new regulatory review with a particular focus on risk profiling, sanction filtering, identification and integration of PEPs. Preparing for this scrutiny meant strengthening compliance departments to meet the challenge.
In Europe, regulators are rolling out money laundering guidelines on cryptocurrency, money mules and trafficking. Financial services companies face profiling and identification challenges as they attempt to meet new regulatory guidelines.
According to Leslie Bailey, vice president, financial crime compliance for LexisNexis Risk Solutions, the survey results indicate that companies should use “a tiered solution approach to financial crime compliance” to “Facilitate a more cost-effective and efficient compliance approach, as well as one that benefits the organization as a whole.”
“Financial institutions should investigate the physical and digital identity attributes of their customers, leveraging data analytics to assess risks and behaviors in real time,” she said.