Study Reveals Annual Cost of Financial Crime Compliance Totals $61 Billion in the United States and Canada

02/21/2024

ATLANTA — LexisNexis® Risk Solutions released the findings of its latest True Cost of Financial Crime Compliance Study – U.S. and Canada. The commissioned study, conducted by Forrester Consulting, reveals that financial crime compliance costs have increased for 99% of financial institutions. The total cost of financial crime compliance in the U.S. and Canada has reached U.S.$61 billion.

Mid and large-sized financial institutions (holding more than $10 billion in assets) must reduce costs while complying with regulations, with 44% identifying the escalation of financial crime regulations and regulatory expectations as the primary factor driving increases in compliance costs. Financial institutions of all sizes are concentrating on cost reduction, with 70% giving priority to cutting costs in the next 12 months.

The challenge of keeping up with the complex sanctions environment is intensifying, leading financial institutions to confront a growing screening workload. At 83% of mid and large-sized organizations and 87% of small organizations (holding less than $10 billion in assets), the number of screening alerts has increased.

Key findings from the study:

• Technology costs are driving increases in expenses for financial institutions, emphasizing the substantial investment required to meet stringent compliance requirements. Specifically, 79% of organizations noticed rises in technology costs related to compliance/know-your-customer (KYC) software in the past 12 months, while technology costs associated with networks, systems and remote work have increased at 75% of businesses.
• Seventy-eight percent of small financial institutions witnessed higher increases in compliance costs related to labor compared to their mid and large-sized counterparts (63%). Conversely, mid and large-sized financial institutions were more likely to experience higher cost escalations for technology, particularly in compliance with KYC software (82%) and external costs associated with outsourcing (79%).
• Cryptocurrencies, digital payments and AI technologies are now also emerging as tools for illicit activities. Organizations are grappling with the impact of these sophisticated criminal methodologies within an already complex regulatory landscape. When asked about the types of financial crime they had observed significant increases of more than 20% in the past 12 months, 22% of companies identified financial crime involving cryptocurrencies, while 22% reported heightened use of AI.

“As the cost of financial crime compliance rises for organizations across the U.S. and Canada, organizations must take a strategic approach to financial crime compliance,” said Matt Michaud, Global Head of Financial Crime Compliance at LexisNexis Risk Solutions. “Skilled in-house compliance teams play a crucial role, but businesses should be actively seeking ways to reduce labor costs while simultaneously improving compliance efficiency. Organizations also need to actively counter cybercriminals exploiting artificial intelligence, cryptocurrencies and digital channels. Financial institutions must proactively equip themselves with comprehensive data sets, advanced AI/ML-based compliance models and robust analytics within their financial crime compliance solutions to swiftly identify new crime patterns."

Recommendations for combating financial crime:

• Balance compliance effectiveness with customer experience. Financial institutions are grappling to acquire and retain customers in the digital era. The winners will be those that can deliver seamless customer onboarding and transaction experiences. Striking the right balance between customer experience and financial crime compliance efficiency involves streamlining KYC and onboarding processes, reducing false positives and allowing legitimate transactions to proceed without inconveniencing the customer.
• Embrace new technologies to counter emerging financial crimes. Criminals are increasingly using new technologies for their activities. To outpace cybercriminals and counter their more sophisticated financial crime, in addition to deploying advanced AI- and ML-based compliance models, financial institutions should leverage privacy-preserving technologies and advanced analytics to swiftly identify new crime patterns.
• Employ compliance tools and analytics to manage costs and enhance efficiency. Labor costs rank highest in financial crime compliance spending. While in-house compliance teams with expertise are crucial, partnering with an external technology provider will alleviate some labor costs and enhance compliance efficiency. To identify the right partner, organizations should focus on their future-fit capabilities, including proven expertise in digital financial services, ease of integration, robust data management, advanced analytics, lightweight software-as-a-service deployments and the ability to balance effectiveness with customer experience.

Download the latest True Cost of Financial Crime Compliance Study – U.S. and Canada.

Methodology
Forrester conducted a global online survey of 1,181 senior decision-makers at financial institutions to evaluate the cost, current state and challenges presented by financial crime compliance operations. The study began in May 2023 and was completed in June 2023. One hundred sixty (160) survey participants were from the U.S. and Canada. The survey asked participants about organizational priorities, exposure to financial crime activities, financial crime spending and factors driving an increase in financial crime costs, challenges in compliance screening operations, the benefits of financial crime operations and future implementation plans. 

About LexisNexis Risk Solutions
LexisNexis^® Risk Solutions harnesses the power of data, sophisticated analytics platforms and technology solutions to provide insights that help businesses across multiple industries and governmental entities reduce risk and improve decisions to benefit people around the globe. 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. For more information, please visit LexisNexis Risk Solutions and RELX.