Cost of financial crime compliance to hit US$ 50.1B in APAC

The total cost of financial crime compliance is projected to hit close to the US$ 50.1 billion mark in 2022 in Asia Pacific, said LexisNexis recently when releasing its latest study on the cost of compliance. 

The study surveyed 253 banks, investment, asset management and insurance firms’ decision makers within the financial crime function across Australia, China, India, Japan and Malaysia. 

Financial institutions represented more than 80% of the total cost of compliance in the region at US$ 40.8 billion, the firm noted.

Survey highlights

• China and Japan accounted for 79.2% of all regional compliance costs at 43.5% and 35.7% respectively even though respondents in these countries accounted for only 40% of the total number of study participants. 
• Higher costs in China and Japan are attributed in part to labor and technology, complying with tighter anti-money laundering (AML) regulations, increased geopolitical risks and evolving criminal threats.
• 74% of surveyed professionals are dealing with increasing compliance regulations amid higher screening volumes, growing complexity in compliance and the pandemic. 
• Compliance professionals address these challenges by expanding their operations teams, which contributed to higher labor costs on salaries (31%) and training (21%) over the past 18 to 24 months. 
• Banks and investment firms have hired additional staff to manage increased workloads due to the rising volume of new business account onboarding.
• Half of the respondents indicated that an additional driver of increased financial crime compliance costs included investing in technology solutions, including network systems that support remote working and software to conduct more rigorous compliance checks with less investigative time. 
• Financial institutions across APAC that spend a higher percentage of their budgets on technology were more resilient, with an outcome of a 50% effectiveness gained from customer profiling and a 25% reduction in the average number of hours spent on due diligence.

Top triggers for increased compliance costs
The top three triggers for increased compliance costs in Asia Pacific include increased geopolitical risk, mentioned by 73% of respondents, AML regulation (68%), and evolving criminal threats (63%), the firm said.

These issues added complexity to sanctions screening, which resulted in financial institutions needing to spend more time to clear alerts and complete due diligence, the firm pointed out. 

In addition, 72% of larger firms indicated that financial crime compliance had a negative impact on productivity and customer acquisition, survey results indicate.

Money laundering
Money laundering through ecommerce and retail channels — from alternative to mainstream, digital payments — have become a common platform for money laundering, enabling criminals to create fictitious transactions that appear legitimate, the firm said. 

Respondents who indicated that money laundering prevention is a challenge include:

• ecommerce merchants – 68%
• retail merchants – 60%
• legal/accounting services – 47%
• real estate services – 45%
• hospitality – 19%
• media/entertainment/gaming/gambling – 7%

Emerging financial crime risks
The study also find the followings as top risk concerns, the firm said.

• trade-based money laundering – 74%
• digital payment-based financial crimes – 67%
• cryptocurrency-related crime – 71%
• money mules – 65%
• third-party legal and finance professionals legitimising illegal activity – 70%
• supply chain corruption – 65%