FINANCIAL CRIME COMPLIANCE COSTS SOAR, NEW RESEARCH SHOWS

• Nearly two thirds of financial crime compliance professionals (63%) have seen compliance costs increase over the past 2 years
• 60% of financial crime compliance professionals claim increased regulation is triggering the need for investment in new technologies

New regulation and advancing criminal methodologies have seen financial crime compliance costs continue to soar in financial institutions in the last two years, according to new research from LexisNexis® Risk Solutions, the global information solution provider, a part of RELX Group. Future Financial Crime Risks 2017 incorporates a survey of nearly 200 senior financial crime compliance professionals from banks in the UK, and reveals 63% of professionals have seen a rise in financial crime compliance costs in the past two years, as opposed to just 2% who have seen decreases over the same time period.

Previous 2015 research conducted on future financial crime risk by LexisNexis Risk Solutions, revealed major financial institutions collectively were exhausting billions of pounds annually on financial crime compliance. Since then, the 2017 research indicates that costs have risen, and are being been most keenly felt by retail banks (69% of who reported an increase) and asset management firms with over £100bn of assets under management (86% reporting an increase).

Furthermore, the results also show that increasing regulations are triggering a need for investment in newer technologies to help financial institutions manage their obligations. 60% of financial crime compliance professionals surveyed say increased regulations are the root cause of increasing technological investment, and nearly half (49%) believe advancing criminal methodologies are having a similar effect.

In addition, the hiring of more experienced staff as a result of regulatory complexities is contributing to the cost of compliance in financial institutions. As one financial crime compliance leader stated, “I’ve never in 20 years seen the volume of regulatory change we’re seeing in the financial crime arena. This and the broader change in terms of structural reform … banks are having to spend more and more money.”

As a result, many financial institutions have hired more personnel to cope with pressure building in financial crime departments. Of the institutions surveyed, 41% highlighted increasing regulatory complexity as an impetus for taking on more experienced staff, with nearly half of financial crime professionals (46%) viewing evolving criminal threats as a similar motivation for hiring additional proven talent. 77% of very large retail banks surveyed reported an increase in overall regulation has driven the requirement for more human resources generally.

Dean Curtis, UK Managing Director at LexisNexis Risk Solutions comments on the findings:

“The past two years have seen a wealth of new regulation issued which continues to increase demands on financial crime departments. It is clear that the cost of regulatory compliance is continuing to weigh heavily on financial institutions and also comes at a time when these organisations are becoming increasingly concerned about evolving and complex criminal methodologies. 

“A large number of firms have thus seen their costs spiral, a situation often exacerbated by legacy technology unfit to cope with the complexities of modern financial security and regulation, driving the need for more human resource. The problem is further compounded by the data utilised in risk decision making, which can be unstructured and of poor quality. 

“Utilising the right technologies and techniques to cleanse, manage and optimise data assists in better risk assessment – without the need to grow headcount, and ensuring resource is deployed in the area of most impact. Slowly the industry is working out what technology does best and what humans do best and how these work together effectively. This is critical in transitioning to an agile approach which keeps pace with financial crime, whilst maintaining a firm rein on costs.”

• Nearly two thirds of financial crime compliance professionals (63%) have seen compliance costs increase over the past 2 years
• 60% of financial crime compliance professionals claim increased regulation is triggering the need for investment in new technologies

New regulation and advancing criminal methodologies have seen financial crime compliance costs continue to soar in financial institutions in the last two years, according to new research from LexisNexis® Risk Solutions, the global information solution provider, a part of RELX Group. Future Financial Crime Risks 2017 incorporates a survey of nearly 200 senior financial crime compliance professionals from banks in the UK, and reveals 63% of professionals have seen a rise in financial crime compliance costs in the past two years, as opposed to just 2% who have seen decreases over the same time period.

Previous 2015 research conducted on future financial crime risk by LexisNexis Risk Solutions, revealed major financial institutions collectively were exhausting billions of pounds annually on financial crime compliance. Since then, the 2017 research indicates that costs have risen, and are being been most keenly felt by retail banks (69% of who reported an increase) and asset management firms with over £100bn of assets under management (86% reporting an increase).

Furthermore, the results also show that increasing regulations are triggering a need for investment in newer technologies to help financial institutions manage their obligations. 60% of financial crime compliance professionals surveyed say increased regulations are the root cause of increasing technological investment, and nearly half (49%) believe advancing criminal methodologies are having a similar effect.

In addition, the hiring of more experienced staff as a result of regulatory complexities is contributing to the cost of compliance in financial institutions. As one financial crime compliance leader stated, “I’ve never in 20 years seen the volume of regulatory change we’re seeing in the financial crime arena. This and the broader change in terms of structural reform … banks are having to spend more and more money.”

As a result, many financial institutions have hired more personnel to cope with pressure building in financial crime departments. Of the institutions surveyed, 41% highlighted increasing regulatory complexity as an impetus for taking on more experienced staff, with nearly half of financial crime professionals (46%) viewing evolving criminal threats as a similar motivation for hiring additional proven talent. 77% of very large retail banks surveyed reported an increase in overall regulation has driven the requirement for more human resources generally.

Dean Curtis, UK Managing Director at LexisNexis Risk Solutions comments on the findings:

“The past two years have seen a wealth of new regulation issued which continues to increase demands on financial crime departments. It is clear that the cost of regulatory compliance is continuing to weigh heavily on financial institutions and also comes at a time when these organisations are becoming increasingly concerned about evolving and complex criminal methodologies. 

“A large number of firms have thus seen their costs spiral, a situation often exacerbated by legacy technology unfit to cope with the complexities of modern financial security and regulation, driving the need for more human resource. The problem is further compounded by the data utilised in risk decision making, which can be unstructured and of poor quality. 

“Utilising the right technologies and techniques to cleanse, manage and optimise data assists in better risk assessment – without the need to grow headcount, and ensuring resource is deployed in the area of most impact. Slowly the industry is working out what technology does best and what humans do best and how these work together effectively. This is critical in transitioning to an agile approach which keeps pace with financial crime, whilst maintaining a firm rein on costs.”