Financial crime compliance in Asia

Mitigate Financial Crime Compliance Cost in Asia Pacific

Organizations that invest in technology are able to better manage financial crime compliance resources and cost.

2022 APAC True Cost of Financial Crime Compliance Study

      

Technology Leads the Fight Back Against the Growing Cost of Financial Crime 

A multi-layered approach to due diligence and risk assessment is crucial

APAC True Cost of Financial Crime Compliance Study
Financial institutions across the Asia Pacific region are reporting increased exposure to a wide range of financial crime. This has pushed the cost of financial crime compliance for financial institutions across the region to a record $50.1bn, according to LexisNexis® True Cost of Compliance™ Study, APAC Edition.

The study of 253 institutions in five markets – China, Australia, India, Malaysia and Japan reveal that the average cost of compliance per financial institution has reached $11.3m annually. 
Key findings include:

  • Increased geopolitical risk, AML regulation and evolving criminal threats are the top three market trends impacting increased compliance costs.
  • APAC financial institutions are facing challenges in compliance screening and due diligence. The key reason is, increasing level of exposure to evolving financial crimes involving digital payments, cryptocurrency, third parties and trafficking of proceeds.
  • Larger APAC financial institutions rank KYC for account on-boarding, positive identification of PEP/sanctioned entities and regulatory reporting as their top compliance screening challenges.
  • The increase in financial crime and regulations, along with COVD-19, has negatively impacted APAC financial institutions’ productivity and on-boarding for new customer accounts. Money mules and digital payments crime have contributed to this.
  • Financial institutions that have invested in technology solutions, to support financial crime compliance efforts, have experienced less severe impacts to cost and compliance operations.

Complete the form to download the 2022 APAC True Cost of Financial Crime Compliance Study

True Cost of Compliance™ Study – Australia

The cost of financial crime compliance for financial firms in Australia will reach $2.54 billion in 2022, according to a new study by LexisNexis Risk Solutions. The True Cost of Financial Crime Compliance shows that the average annual cost of compliance for mid-sized and large Australian financial institutions has risen to $19.2m, one of the highest levels in the Asia Pacific region. 

The study, of 253 institutions across APAC including 50 in Australia, shows that financial institutions across the region are reporting a sharp increase in their exposure to financial crime, both in terms of volume and the range of crimes. 82% of 10 Australian financial institutions say that they have seen an increase in the use of ‘money mule’ accounts used to launder the proceeds of crime in the past 18 to 24 months, while 81% report an increase in crime involving digital payments. 

The trend towards digital banking and remote transactions, which accelerated during the COVID-19 pandemic, and the use of third parties to disguise crimes make it difficult for institutions to meet specific compliance requirements such as the identification of politically exposed persons (PEPs), which in turn increases the risk of sanctions violations. 

Financial institutions in Australia say that identification of ultimate beneficial owners, combined with the complexity of Know Your Customer (KYC) business data are their most significant challenges. While the new requirement for all directors in Australia to have a director ID number has helped with due diligence, the lack of a central repository for beneficial ownership information within Australia remains a hurdle to effective checks. Remote working during the pandemic had a negative impact on Australian firms’ productivity in terms of sanctions screening and KYC processes – it is taking longer for employees to clear suspicious alerts, particularly those triggered during anti-money laundering transaction monitoring. 

This complex environment creates the potential for friction in customer service (particularly onboarding) for legitimate customers; 45% of respondents (and 59% of the largest Australian institutions) say that their financial crime compliance challenges have had a negative impact on customer acquisition. And many expect these challenges to increase in the future. Three quarters of Australian financial institutions say that the volume of foreign business accounts they are onboarding has increased, which is likely to result in an increase in the volume of alerts. Overall, 65% of Australian financial institutions say they expect alert volumes to increase this year, by an average of 11%.

The increase in financial crime, combined with more stringent regulatory requirements and a crackdown by the Australian Transaction Reports and Analysis Centre (Austrac) against breaches of anti-money laundering (AML) requirements, is driving financial institutions and other organisations that are subject to AML legislation (such as casinos) to significantly expand their compliance teams. 69% of those questioned say that they have increased compliance staff numbers since 2019, and salaries and training costs now account for 54% of the annual cost of financial crime compliance.

Competition for risk and compliance talent is intense. While around half of all new hires are entry level workers needed to cope with the rise in workload, one in five respondents said that they have recruited highly skilled and experienced compliance professionals in the face of increasingly complex threats. 

Technology is seen as the solution to these challenges. The study shows that half of all financial institutions have invested in data, tools and technology to improve their risk assessments and KYC processes. And the study shows that those financial institutions that spend more on technology enjoy a lower cost of compliance and realise greater efficiency in their compliance operations.

Australian firms that allocate more of their compliance budget to technology spend less on financial crime compliance overall - $17.5m annually, compared with $20.1m for firms that allocate less of their budget to technology. These firms also report fewer challenges around customer risk profiling, effective KYC profiling, and alert resolution than those firms that spend less on technology. 

The rise in financial crime worldwide in the digital age means that a multi-layered approach to due diligence and risk assessment is crucial. Timely and accurate data, digital and physical intelligence, and behavioural analytics are powerful proactive tools that will allow financial institutions across Australia to meet compliance challenges, manage costs and protect the customer experience. 

Explore the LexisNexis® 2022 True Cost of Financial Crime Compliance study for Australia now. 
 

Complete the form to download Australia study

True Cost of Compliance™ Study – China

The cost of financial crime compliance in China will reach $21.8 billion in 2022 as financial institutions deal with the consequences of geopolitical risk (in the form of more complex sanctions) and tighter anti-money laundering (AML) regulations, a new study by LexisNexis Risk Solutions has found. The average annual cost of financial crime compliance is now $18.7 million for each medium and large financial institution in China. 

The True Cost of Financial Crime Compliance, a study of 253 institutions across Asia Pacific including 50 in China, found that Chinese financial firms’ exposure to financial crimes has increased in the past 18 to 24 months. What is striking from the results is the wide range of crimes reported. The majority of respondents said they had seen an increase in the use of third parties to lend legitimacy to illegal activity, the abuse of offshore and shell corporate structures, and in trade-based money laundering schemes. Respondents also reported an increase in their exposure to crimes relating to digital payments, the use of money mule accounts to launder the proceeds of crime, and bribery and corruption

The range of crimes and increasing complexity of know-your-customer (KYC) and AML checks – including a requirement to check for cryptocurrency in a transaction chain following the decision by the People’s Bank of China to ban cryptocurrency transactions in September 2021 – is driving up the cost of compliance. New guideline rules, jointly published by the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, also would also take effect from 2022. The latest revised rules regulate how financial institutions conduct due diligence on clients, and store their identity and trading data, will also bring China more in line with global anti-money laundering (AML) standards and strengthen financial firms' ability to combat money laundering. 

There is little sign that the compliance workload will ease. The trend towards digital banking and remote transactions, which accelerated during the COVID-19 pandemic, and the use of third parties to disguise crimes make it difficult for institutions to develop customer risk profiles. The increased volume of alerts triggered during AML and KYC checks creates the potential for friction in customer service (particularly onboarding) for legitimate customers – 65% of Chinese firms say that financial crime compliance has had a negative impact on customer acquisition. Two thirds expect alert volumes to increase this year, by an average of 9%. 

Technology is seen as the solution to these challenges. The study shows that 82% of KYC checks on domestic accounts are done manually (usually through a search engine), although institutions are more likely to use AML software for checks on international accounts. Institutions say they need better KYC data and analytics, particularly when it comes to onboarding more complex business customers – customer due diligence takes significantly longer for new corporate accounts (an average of 54 hours compared with seven hours for domestic retail accounts) because organisational structures can make it difficult to identify risks associated with ultimate beneficial owners and politically exposed persons. 

The study shows that across APAC, half of all financial institutions have invested in data, tools and technology to improve risk assessments and processes. The study also reveals the benefits of spending on financial crime compliance technology in terms of cost and operational efficiency:

  • Chinese financial institutions that allocate a larger share of their compliance budget to technology spend less on financial crime compliance overall. 
  • The average annual cost of compliance for those that spend less than the sector average on technology is $19.8m, compared with $16.1m for those that spend more on technology. 
  • Firms that spend more on compliance technology are also less likely to experience challenges with efficiency, risk assessment, and sanctions screening. 

The rise in financial crime worldwide in the digital age means that a multi-layered approach to due diligence and risk assessment is crucial. Timely and accurate data, digital and physical intelligence, and AI-driven data and behavioural analytics are powerful proactive tools that will allow financial institutions across APAC to meet compliance challenges, manage costs and protect the customer experience. 

Explore the LexisNexis® 2022 True Cost of Financial Crime Compliance study – China Edition now.

Complete the form to download China study

True Cost of Compliance™ Study – India 

The total cost of financial crime compliance born by India’s financial firms is rising sharply and will reach $6.85 billion in 2022, according to a new study by LexisNexis Risk Solutions. This represents an increase of 24% since 2020. The True Cost of Financial Crime Compliance study shows that the average annual cost of financial crime compliance for each medium and large sized financial institution in India has now reached $17.77 million, 13.2% higher than in 2020.

Costs are being driven up by a rise in the frequency and range of financial crimes. Financial institutions in India say that their exposure to many types of financial crime have increased in the past 18 to 24 months, including trade-based money laundering and the use of money mule accounts: 

  • 71% of respondents to the survey said that crimes involving digital payments have increased
  • 65% reported an increase in crimes involving cryptocurrency, and 
  • 65% have seen an increase in crimes involving third party advisers, such as lawyers and accountants, to lend legitimacy to a transaction.
The study confirms that financial crime involving cryptocurrency is a significant challenge. It is estimated that money laundering involving cryptocurrency in India is increasing by up to 30% year-on-year and criminals are using increasingly sophisticated techniques to avoid detection. The Enforcement Directive found more than Rs 4,000 crore of illegal transactions through cryptocurrency exchanges in 2021 and the Financial Action Task Force has warned countries across the world to take better action to address the risks of money laundering and terrorism financing through virtual assets. 

At the same time, the Covid-19 pandemic prompted a significant increase in digital payments and the use of payment gateways, and remote customer onboarding, putting additional pressure on financial crime compliance processes. Transactions are more rapid and anonymized, and the number of parties involved in the e-commerce ecosystem makes criminal activity increasingly difficult to detect. 

Firms have increased the size of their compliance teams in order to cope – 69% of financial institutions in India say they have added to their compliance teams since 2020 and salaries and staff training costs now account for almost half of all financial crime compliance costs. Even so, the study shows that due diligence checks are taking longer to complete. On average it now takes 48 hours to complete due diligence on larger or foreign accounts, compared with 23 hours in 2020.  

The study shows that financial firms are struggling to cope with the number of alerts created during due diligence processes, which has increased sharply. 61% of respondents expect the volume of alerts to grow again in 2022, by an average of 8%. This is having a negative impact on firms’ ability to serve their customers efficiently:

  • 90% of respondents say that financial crime compliance has had a negative impact on customer acquisition (up from 66% in 2020)
  • 81% said that compliance has had a negative impact on productivity.

Technology is seen as the solution to these challenges. The study shows that half of all financial institutions worldwide have invested in data, tools and technology to improve risk assessments as anti-money laundering (AML) activity grows and investigations become more complex. The study also reveals that those financial institutions that have allocated a larger share of their compliance costs to technology spend less overall on compliance and realise greater efficiency in their compliance operations. For example: 

  • Indian firms that allocate more of their compliance budget to technology spend less on financial crime compliance overall - $16.4m annually, compared with $19.9m for firms that allocate less of their budget to technology 
  • 60% of firms that spend less than the industry average on technology say that alert resolution efficiency is a challenge; this falls to 42% among institutions that spend more than average on technology. 

The rise in financial crime worldwide in the digital age means that a multi-layered approach to due diligence and risk assessment is crucial. Timely and accurate data, digital and physical intelligence, and behavioural analytics are powerful proactive tools that will allow financial institutions across APAC to meet compliance challenges, manage costs and protect the customer experience. 

Explore the LexisNexis® 2022 True Cost of Financial Crime Compliance study for India now.

Complete the form to download India study

True Cost of Compliance™ Study – Japan

Financial crime compliance will cost Japan’s financial institutions $17.9 billion in 2022, according to a new study by LexisNexis Risk Solutions. The True Cost of Financial Crime Compliance shows that the average annual cost of compliance for mid and large sized financial institutions in Japan, at $24.5 million, is higher in Japan than it is in any other Asia Pacific nation. 

Financial institutions in Japan have seen a sharp rise in a wide range of financial crimes in the past 18 to 24 months. Of 253 financial institutions across APAC questioned for the study, including 50 in Japan, the vast majority had seen an increase in a variety of crimes: 

  • 82% said their exposure to trade-based money laundering schemes has increase since 2020
  • 79% said crime involving cryptocurrency has increased
  • 76% said crime involving digital payments has increased, and 
  • 74% said abuse of corporate of offshore structures to launder money has increased.

The boom in digital payments and online banking, which accelerated during the Covid-19 pandemic, has exacerbated a growing problem. Financial institutions in Japan say that sectors involving payments, particularly e-commerce and retail, as well as transactions involving third party professionals such as legal, accounting and real estate services (which can lend legitimacy to illicit transactions), are now ranked as high risk for money laundering. 

At the same time, more complex sanctions, the rise of cryptocurrency, and criminals’ sophisticated use of technology are driving up the cost of compliance. Identifying falsified account information, Illicit transactions and the ultimate ownership of funds or assets is becoming increasingly difficult and institutions are carrying out more complex and time consuming Know-Your-Customer (KYC) checks and due diligence.

The boom in online financial services has also resulted in a significant increase in customer onboarding activity, which is governed by robust regulatory requirements. Managing the volume of alerts triggered by KYC and anti-money laundering checks has become a challenge for many institutions and is unlikely to ease. 65% expect alert volumes to increase again next year, by an average of 9%.

70% of Japanese financial institutions say they have responded to these extra demands by expanding their financial crime compliance functions. Demand is high for compliance professionals at all levels; 71% of firms have added entry level staff, but 41% have hired those with significant experience and a quarter have added highly skilled compliance professionals. Labour, in the form of salaries, is the single largest cost consideration for firms, accounting for 29% of the total cost of compliance. 

The study shows that the compliance workload, increased regulatory requirements and greater complexity of checks and investigations is affecting both productivity and firms’ ability to attract and keep customers. Many firms struggled during the pandemic – 63% say that the pandemic resulted in delays on onboarding of new accounts and 60% say it took longer to carry out customer due diligence – but the strain on compliance operations has not abated. Overall, three-quarters of firms say that financial crime compliance has had a negative impact on customer acquisition.

The study calls for better KYC and analytics to support KYC for onboarding, alert resolution and regulatory reporting. Many firms say that they do not have access to the data they need to develop effective risk profiles and maintain an audit trial for regulators. 

Technology is seen as the solution to these challenges. The study shows that half of all financial institutions across the APAC region have invested in data, tools and technology to improve risk assessments. It is also clear that Japanese firms that allocate more of their compliance budget to technology spend less on financial crime compliance overall - $16.8m annually, compared with $29.6m for firms that allocate less of their budget to technology.

The rise in financial crime worldwide in the digital age means that a multi-layered approach to due diligence and risk assessment is crucial. Timely and accurate data, digital and physical intelligence, and AI-driven data and behavioural analytics are powerful proactive tools that will allow financial institutions across APAC to meet compliance challenges, manage costs and protect the customer experience. 

Explore the LexisNexis® 2022 True Cost of Financial Crime Compliance study – Japan Edition now. 

Complete the form to download Japan study

True Cost of Compliance™ Study – Malaysia

Financial crime compliance will cost financial firms in Malaysia $1.04 billion in 2022, according to a new study by LexisNexis Risk Solutions. The True Cost of Financial Crime Compliance shows that mid and large sized firms in Malaysia (those with assets of $10 billion or more) will each spend an average of $11.04 million on compliance every year – 40% more than they spent in 2019. 

While the Covid-19 pandemic has had a significant impact on the efficiency of financial crime compliance – two thirds of larger institutions in Malaysia say their compliance operations were less productive during the pandemic, and that customer onboarding suffered delays as a result – the study shows that banks and investment firms have seen a steady rise in a wide range of financial crimes in the past 18 to 24 months:

  • 82% say their exposure to corruption and bribery in the supply chain has increased – this is a particular problem for asset management and investment firms
  • 81% say they have seen an increase in the use of money mule accounts
  • 77% of respondents, predominantly banks, have seen an increase in their exposure to trade-based money laundering schemes
  • 75% say financial crime involving digital payments has increased, and 66% say crime involving cryptocurrency has increased.

E-commerce and retail merchants are seen as posing the highest risk of money laundering, but firms are also concerned about third party advisers, such as lawyers and accountants, who can lend legitimacy to illicit activity. 

As well as the increase in the prevalence of financial crime, increased geopolitical risk has resulted in a more complex sanctions regime, adding significantly to the compliance workload for financial firms. It now takes 65 hours, on average, to clear an anti-money laundering (AML) monitoring alert, compared with just seven hours in 2019. 65% of firms say they expect the volume of alerts generated by compliance checks to increase again this year, by an average of 10%. 

Many firms have expanded their compliance operations to cope with the extra workload – 69% of all respondents, and 78% of the largest banks, say they have hired more staff since 2019. Salaries are the biggest cost component in financial crime compliance but a slight fall in labour costs as a proportion of total costs (from 55% in 2019 to 51% in 2022) suggests that firms are beginning to investing in technology in order to improve compliance efficiency and productivity.  68% of firms say they need compliance staff who can drive tech adoption.

The study shows that financial firms in Malaysia are struggling with specific checks, such as Know Your Customer (KYC) checks and with the identification of politically exposed persons (PEPs). Customer due diligence checks on corporate accounts (particularly businesses that are larger and/or foreign) are taking 65 hours to complete in 2022, that is 4.6 times more compared to the time taken in 2019.

Technology holds the solution. The study shows that across APAC, half of all financial institutions have invested in data, tools and technology to improve risk assessments and processes. The study also reveals the benefits of spending on financial crime compliance technology in terms of cost and operational efficiency:

  • The average annual cost of compliance for Malaysian firms that spend less than the sector average on financial crime compliance technology is $11.4m, compared with $9.7m for those that spend more than average. 
  • Firms that spend more on compliance technology are less likely to experience challenges with regulatory reporting, identifying UBOs, and efficient KYC profiling. 
  • Of those that spend less on technology, 94% said that customer due diligence took longer to complete during the pandemic, compared with 58% of those that spend more on technology.  

The rise in financial crime worldwide in the digital age means that a multi-layered approach to due diligence and risk assessment is crucial. Timely and accurate data, digital and physical intelligence and behavioural analytics are powerful proactive tools that will allow financial institutions across APAC to meet compliance challenges, manage costs and protect the customer experience. 

Explore the LexisNexis® 2022 True Cost of Financial Crime Compliance study for Malaysia now. 

Complete the form to download Malaysia study

See the Results of Previous Studies

2020 India Study

2020 Philippines Study

2020 Indonesia Study

2020 Singapore Study

2020 Regional Study

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