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LexisNexis Risk Solutions Study Reveals Financial Crime Compliance Costs Across Asia-Pacific Region Increased 20.6% Year Over Year

Risk Professionals Expect COVID-19 Will Continue to Drive Higher Costs in 2021

ASIA — LexisNexis® Risk Solutions today released the findings of its latest True Cost of Financial Crime Compliance Study – APAC edition. The survey of compliance professionals identifies the drivers affecting financial crime compliance and highlights spending trends. The study also explores the business impacts of changes in the financial crime compliance environment particularly regarding new regulations and identifies challenges and impacts associated with the COVID-19 pandemic.

All financial institutions grappled with the challenges of the past calendar year, but firms that focus more of their compliance resources on technology realize both financial and process benefits. Compliance professionals indicate that when technology has a larger share of budget, the business has improved risk management and more robust data to help support more informed customer relations. These tech-forward firms are also buffered from excessive increases in compliance costs driven by regulatory needs.

Focusing on technology also helps compliance officers deal with challenges posed by the global pandemic. Survey respondents suggest that more technology investment elevates human resources to focus on more process-critical tasks such as alert remediation.

The report found that the total projected cost of financial crime compliance increased significantly for larger financial institutions in the Asia-Pacific (APAC) market. For APAC financial firms that participated in the study 2020, the cost of compliance was $12.06 billion USD, with larger financial institutions representing a sizeable portion at $6.49 billion. India represents 46% of these costs at $5.51 billion since there are significantly more financial services institutions in that market compared to others.

Compliance Technology Reduces Costs and Challenges

The report finds that financial institutions that allocate more financial crime compliance expenditures to technology realize smaller increases in cost compared to those with lower technology spend. Firms with above average compliance spend on technology solutions are 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.

Firms across APAC that allocate a higher percentage of compliance spend to technology have comparatively lower overall compliance cost at an average of $14.6 million annually compared to $18.1 million for those dedicating higher spend to labor. Financial institutions that allocate a larger share of their financial crime compliance costs to technology also have lower costs at $61,300 per compliance professional annually compared to $115,400 for firms that allocate more for labor.

COVID-19 Impact

“COVID-19 has undoubtedly impacted financial crime compliance operations and costs for financial institutions across the region,” said Douglas Wolfson, director, financial crime compliance APAC for 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 APAC financial firms expect COVID-19 to further impact compliance cost over the next 12 to 24 months. Sixty nine percent of firms expect increased costs will involve technology spend with only 31% seeing it as a driver of labor costs.

Compliance professionals report that the pandemic has negatively impacted on these business areas and issues as follows:
  • 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 APAC study surveyed 231 decision-makers who oversee KYC remediation, sanctions monitoring, financial crime transaction monitoring and/or compliance operations across four APAC countries. Organizations represented banks and investment, asset management and insurance firms.

Download a copy of the True Cost of Financial Crime Compliance Study – APAC Edition

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.

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