“The cost of financial crime compliance is clearly rising for financial institutions across EMEA which is being felt by teams across the entire compliance workflow,” said Matt Michaud, global head of financial crime compliance at LexisNexis Risk Solutions, commenting on the findings of the ‘True cost of financial crime compliance’ report. Photo: LexisNexis Risk Solutions

“The cost of financial crime compliance is clearly rising for financial institutions across EMEA which is being felt by teams across the entire compliance workflow,” said Matt Michaud, global head of financial crime compliance at LexisNexis Risk Solutions, commenting on the findings of the ‘True cost of financial crime compliance’ report. Photo: LexisNexis Risk Solutions

Driven by digital banking vulnerabilities and rising labour expenses, financial crime compliance costs are rising, with France and Germany accounting for over two-thirds of EMEA’s estimated $85bn in FCC expenses, reported LexisNexis Risk Solutions.

A staggering 98% of financial institutions have reported an increase in financial crime compliance (FCC) costs, reflecting significant economic pressures within the sector, stated global data analytics and risk management service provider LexisNexis Risk Solutions. The , part of a global survey and the ‘True Cost of Financial Crime Compliance’ report, was conducted by Forrester Consulting and involved 483 financial crime and compliance decision-makers across Europe, the Middle East and Africa (EMEA).

Essential FCC

FCC is crucial for protecting consumers’ interests and ensuring the integrity, reputation and stability of financial institutions, said LexisNexis. For survey respondents, customer experience stood out as a top priority, with significant focus from organisations in Europe (86%) and the Middle East (90%). Improving payment data for better processing emerged as the next major priority, concerning 85% of professionals, followed by the need to reduce compliance costs, a significant concern for 81% of respondents.

Escalating costs

France ($25.3bn) and Germany (€32.5bn) together accounted for over two-thirds of the estimated $85bn FCC costs in EMEA in 2023, the report highlighted. The survey revealed that increasing financial crime regulations and regulatory expectations had been major drivers of FCC costs in the past 12 months, with 35% of respondents agreeing, while 32% noted the demand for automation, data and tools to support FCC as contributing factors to the rise in expenses.

Labour costs, particularly salaries, were the main source of FCC cost increases, with 72% of respondents agreeing, followed by costs associated with training, which 70% of respondents identified. The expenses related to compliance and know-your-customer (KYC) software, as well as networks/systems and the requirements of remote work, were also highlighted as contributing factors to the rising costs.

In addition, more than half of the survey respondents (58%) reported a significant increase in financial crimes involving digital payments, cryptocurrencies and artificial intelligence (AI) technologies. Specifically, financial crimes involving digital payment experienced the highest increase, with more than 20% in the past 12 months, according to the respondents.

Recommendations

To maintain a competitive edge in the digital era, financial institutions must find the right balance between compliance effectiveness and enhancing the customer experience, noted LexisNexis. Streamlining KYC and onboarding processes, reducing false positives, and allowing more legitimate transactions to proceed smoothly are essential steps in achieving this balance, recommended the report. This approach not only improves customer satisfaction but also bolsters FCC efficiency.

Additionally, managing FCC costs and improving efficiency requires partnering with the right FCC technology providers, advocated LexisNexis. These partners should offer expertise in digital financial services, easy integration and capabilities in data management and advanced analytics. Furthermore, to counteract increasingly sophisticated financial crimes facilitated by new, financial institutions must adopt advanced AI- and machine learning-based compliance models. Leveraging these technologies, along with privacy-preserving measures and advanced analytics, will enable institutions to quickly identify and respond to new crime patterns, ensuring a robust defence against cybercriminals, concluded LexisNexis.

Matt Michaud, global head of financial crime compliance at LexisNexis Risk Solutions, highlighted the rising cost of FCC across EMEA and the essential role of skilled in-house compliance teams. In the report, Michaud supported the active pursuit of strategies to mitigate labour costs and boost compliance efficiency, underscoring the necessity for a partner equipped with advanced tools, data and analytics to outpace criminal activities.

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