The cost of financial crime compliance has increased significantly for larger financial institutions in the Asia-Pacific market. But those that allocate more expenditures to technology realize comparatively smaller increases in cost, a new study finds.
Firms with above-average compliance spend on technology solutions are also less challenged during the customer acquisition process: 39% of mid to large firms indicated this as a challenge compared to 70% of firms who had below-average technology expenditure, according to LexisNexis Risk Solutions in its latest report on the cost of financial crime compliance in the region.
Focusing on technology also helps compliance officers deal with challenges posed by the global pandemic. Survey respondents suggest that more technology investment allows human resources to focus on more process-critical tasks such as alert remediation.
For financial firms in the region that participated in the study, the projected cost of compliance for 2020 was US$12.06 billion, up 20.6% from the previous year, with larger financial institutions representing a sizeable portion at US$6.49 billion. India represents 46% of these costs at US$5.51 billion since there are significantly more financial services institutions in that market compared to others. The biggest year-on-year increase were shouldered by larger financial institutions in the Philippines and Singapore.
Firms that allocate a higher percentage of compliance spend to technology have comparatively lower overall compliance cost at an average of US$14.6 million annually, compared to US$18.1 million for those dedicating higher spend to labour. Financial institutions that allocate a larger share of their financial crime compliance costs to technology also have lower costs at US$61,300 per compliance professional annually compared to US$115,400 for firms that allocate more for labour, the study finds.
“Covid-19 has undoubtedly impacted financial crime compliance operations and costs for financial institutions across the region,” says Douglas Wolfson, director of financial crime compliance for Asia-Pacific at LexisNexis Risk Solutions. “The pandemic compounded the current set of KYC (know your customer), alert resolution and sanction screening challenges, and contributes conclusively to significant cost increases among all banks.
“Additional regional and international regulations will continue to spur the need for greater internal controls and more comprehensive risk-management technology platforms that help ensure compliance and lessen financial crime compliance cost.”
A large majority of financial firms in the region expect Covid-19 to further impact compliance cost over the next 12 to 24 months. About 69% of firms expect increased costs will involve technology spend with only 31% seeing it as a driver of labour costs.
Compliance professionals report that the pandemic has negatively impacted on these business areas and issues:
- Customer risk profiling – 63%
- KYC for account on-boarding – 74%
- Sanctions screening – 75%
- Efficient resolution of alerts – 63%
- Positive identification of sanctioned entities or politically exposed persons (PEPs) – 58%
- Resource efficiencies – 65%
The study surveyed 231 decision-makers who oversee KYC remediation, sanctions monitoring, financial crime transaction monitoring and/or compliance operations across four Asia-Pacific countries, namely India, Indonesia, Philippines and Singapore.