The cost of financial crime compliance has risen significantly according to the 2020 LexisNexis Risk Solutions True Cost of Financial Crime Compliance Study, APAC Edition. Across all financial institutions in Asia-Pacific (APAC) study countries of India, Indonesia, Philippines and Singapore, the annual projected cost of financial crime compliance is $12.06B for 2020, with the greatest year-on-year increase being shouldered by larger Filipino and Singaporean financial institutions.
Accordingly, the need for financial crime compliance teams has grown, driving up labor costs and contributing to spikes over previous reporting periods.
These spikes are occurring concurrently with a consistent top challenge across most APAC markets: more diligent Know Your Customer (KYC) for account onboarding and sanctions screening as a result of a growing risk of money laundering. The need for greater KYC scrutiny is placing pressure on APAC bank compliance teams and lessening productivity as costs rise. KYC for onboarding and sanctions screening has been particularly challenging during the pandemic period, as due diligence hours for onboarding new foreign and large accounts have increased dramatically.
Adding to the challenge, COVID-19 has significantly impacted financial crime compliance operations and costs across APAC financial institutions The study reveals that larger APAC banks (those with > $10B in assets) attributed an average incremental $1.4M of increased compliance costs to the pandemic.
Not surprisingly, average due diligence times have also increased significantly during the COVID-19 pandemic, particularly for larger and foreign business accounts. A large majority of APAC financial firms expect COVID-19 to further impact compliance costs and time commitments over the next year or two.
Challenges aside, financial crime compliance activities do provide a range of benefits to APAC financial institutions, enabling more effective risk management and management of customer relationships. Knowing more about customers not only supports risk assessment, but also provides ways in which customer relationships and business opportunities can be managed through an improved customer understanding.
The rise of costs and ensuing challenges has led financial institutions in the APAC markets to seek ways to experience smaller cost increases and fewer negative impacts from COVID-19. Those who are allocating more spend toward technology solutions are recognizing a multitude of benefits. Year-on-year compliance cost increases have trended downwards while efficiencies have improved. Also APAC financial institutions that have allocated a larger share of their financial crime compliance costs to technology have experienced fewer negative COVID-19 impacts on their compliance operations. The established use of technology has helped them become more prepared.
With the murkiness of the financial landscape and the anticipation by financial institutions that they could be faced with greater spikes in financial crime at least for the foreseeable future, a multi-layered solution approach to due diligence and financial crime risk assessment is essential. The growth of financial crime complexity in the digital age, the proliferation of regulations that require more due diligence, and unique risks that emerge from individuals, transactions and contact channels demand it.
Through the combination of robust and accurate data, physical and digital intelligence, and the addition of near real-time behavioral data and analytics, APAC financial institutions will in a better position to counter challenges and costs to compliance operations.
Explore the complete LexisNexis® True Cost of Financial Crime Compliance Regional Study now.