A LexisNexis® Risk Solutions study released today shows:
BEIJING and ATLANTA (April 27, 2016) – Financial Institutions across China, Hong Kong, Singapore, Malaysia, Indonesia and Thailand are rapidly increasing the amount they spend on combatting money laundering as new regulations bite, a major new study focused on financial services in Asia has revealed.
The LexisNexis® Risk Solutions study found that 82 per cent of respondents believe overall anti-money laundering (AML) compliance costs will increase this year; with one-third projecting that direct and indirect costs will rise by 20 per cent or more. Eighty-five per cent of respondents indicate that costs have increased over the past two years.
“Financial institutions in the region are now conservatively spending an estimated US$1.5 billion annually on AML compliance. This is set to increase dramatically as regulators ratchet up the pressure on the companies to fight money-laundering,” said Thomas C. Brown, senior vice president, Global Market Development, LexisNexis® Risk Solutions.
“Interestingly, financial institutions in Asia see AML compliance driven nearly as much by a desire to improve business results as by regulatory or reputational risk concerns. Hong Kong and Singapore cited compliance and reputational risk as the top two drivers, reflecting the maturity of regulation in these markets. China respondents listed regulatory compliance as the lowest of their priorities by a wide margin.”
Local regulations (25 per cent) are cited most frequently as having the greatest impact in Asia, however U.S. regulation, embodied in the PATRIOT Act, is cited most frequently overall by respondents, followed by European regulation. Singapore and Hong Kong laws and regulations are also seen as having an impact, in line with their role as leading hubs of financial activity. China is the fourth most-cited regulator in terms of overall responses, reflecting the growing importance of China and its currency in the region.
A majority of respondents (55 per cent) indicate that AML compliance has a negative impact on their firms’ business productivity, while 15 per cent agree that it threatens their firms’ ability to do business. However, 14 per cent of firms see AML as having a positive impact on their business through identifying and overhauling procedural deficiencies and improving operational processes and transactional losses.
Firms in Asia are challenged by all aspects of compliance screening, from onboarding to reporting. Regulatory reporting, customer risk profiling and KYC for account onboarding are cited as the most challenging aspects of a firms’ compliance screening operations.
Most firms in the region have failed to achieve fast onboarding times. Even for domestic retail customers, the segment with the most straightforward compliance procedures, only 15 per cent of respondents complete customer due diligence in under an hour. Nearly all (96 per cent) survey respondents indicate that their KYC processes require a variety of Asian language documents, which can introduce added complexity to compliance procedures.
While AML operations are increasingly reliant on sophisticated technology to automate behavior analysis and entity screening, the study shows that on average technology costs make up a mere 19 per cent of AML budgets in Asia. This suggests that technology use at AML operations in Asia is still somewhat immature. Personnel costs are by far the largest portion (81 per cent) of AML compliance spending in the region.
With the additional pressure to keep up with changes in compliance, 63 per cent of survey respondents indicate some concern with job satisfaction among their analyst teams. This has caused an estimated compliance productivity loss due to job satisfaction issues at financial institutions in Asia averaging 355 days per firm. This suggests a total annual productivity loss of 202 full-time equivalent years at a cost of US$26 million across the six markets in Asia covered by this study.
In order to understand the true cost of AML and KYC compliance for financial institutions in Asia, the LexisNexis® Risk Solutions study surveyed AML, compliance and risk professionals across China, Hong Kong, Singapore, Malaysia, Indonesia and Thailand to capture the direct and indirect costs to financial institutions of AML compliance, including productivity, customer attrition, and employee morale issues. The survey also sought to understand the degree to which AML compliance change led to improved processes and supported business objectives, such as shorter onboarding cycles, stronger data management and better understanding of customers for suitability and CRM purposes.
Click here to download a copy of the detailed report.
“This survey of over 200 compliance professionals in Asia-Pacific confirms that AML compliance change is evolving quickly in the region and that costs for many firms are skyrocketing,” said Neil Katkov, PhD, Senior Vice President at Celent. “The study suggests that firms are in need of solutions to help manage and streamline increasingly complex processes. At the same time, the survey shows that financial institutions in Asia are very clear on the potential benefits to the business of a well-managed AML compliance regimen, and that knowing your customer for compliance purposes will also help them better understand and serve their customer.”
The True Cost of Anti-Money Laundering Compliance: Asia Pacific Edition was designed by LexisNexis Risk Solutions and Celent, and fielded by LexisNexis Risk Solutions in six regions in Asia. The survey was conducted online in September and October 2015. The survey was supplemented by one-on-one telephone interviews to provide more insight around issues in AML compliance. Analysis of the information took place between November 2015 and January 2016.
About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based and analytics and decision tools for professional and business customers. For more information, please visit www.risk.lexisnexis.co.uk and www.relx.com.