The cost of financial crime compliance in the Asia-Pacific region in 2023 totaled US$45 billion, according to a study by LexisNexis Risk Solutions.
The latest True Cost of Financial Crime Compliance Study – Asia Pacific found that organisations are prioritising cost reduction while ensuring regulatory adherence, as 98% of financial crime compliance cost rose 98% for Asia-Pacific financial institutions.
The study, which was conducted by Forrester Consulting, revealed that 81% of financial institutions prioritise on cutting compliance costs in the coming 12 months as criminals adopt cryptocurrencies and artificial intelligence techniques for their illicit activities
The intensifying challenge of keeping up with the complex sanctions environment is leading financial institutions to confront a growing screening workload, LexisNexis says, adding that these result in an increase in the number of screening alerts at 79% of organisations.
Among the other key findings from the study include:
- Technology costs are driving increases in expenses for financial institutions, emphasising the substantial investment required to meet stringent compliance requirements. Specifically, 70% of organisations noticed rises in technology costs related to compliance/know-your-customer (KYC) software, while technology costs associated with networks, systems and remote work have increased at 74% .
- Seventy-five percent (75%) of APAC institutions cited labour costs as a primary driver of cost escalation. This emphasises the investment needed in highly qualified compliance professionals to effectively address and fulfill stringent compliance requirements.
- Cryptocurrencies, digital payments, and AI technologies are emerging as tools for illicit activities. Organisations are grappling with the impact of these sophisticated criminal methodologies within an already complex regulatory landscape. When asked about the types of financial crime, institutions had observed significant increases of more than 20% in the past 12 months, with 23% having identified financial crime involving cryptocurrencies, while 23% reported heightened use of artificial intelligence (AI).
“The cost of financial crime compliance is clearly rising for financial institutions across APAC which is being felt by teams across the compliance workflow,” says Matt Michaud, global head of Financial Crime Compliance at LexisNexis Risk Solutions.
Michaud adds that skilled in-house compliance teams are essential, but businesses should be actively seeking ways to reduce labour costs while improving compliance efficiency. "Criminals adapt quickly and [financial institutions] require a partner with advanced tools, data and analytics to not only keep pace but to stay ahead," he points out.
Recommendations for combating financial crime:
- Balance compliance effectiveness with customer experience. Financial institutions are grappling to acquire and retain customers in the digital era. The winners will be those that can deliver seamless customer onboarding and transaction experiences. Striking a balance between customer experience and financial crime compliance efficiency involves streamlining KYC and onboarding processes, reducing false positives and allowing legitimate transactions to proceed without inconveniencing the customer.
- Embrace new technologies to counter emerging financial crimes. Criminals are increasingly using new technologies for their activities. In addition to deploying advanced AI- and ML-based compliance models, financial institutions should leverage privacy-preserving technologies and advanced analytics to swiftly identify new crime patterns to outpace cybercriminals and counter sophisticated financial crime.
- Employ compliance tools and analytics to manage costs and enhance efficiency. Labour costs rank highest in financial crime compliance spending. While in-house compliance teams with expertise are crucial, partnering with an experienced and proven technology provider will alleviate some labour costs and enhance compliance efficiency. To identify the right partner, organisations should focus on their future-fit capabilities, including proven expertise in digital financial services, ease of integration, robust data management, advanced analytics, lightweight software-as-a-service deployments and the ability to balance effectiveness with customer experience.
