18/07/2024
LONDON — UK financial services firms are spending more than £21,000 per hour fighting financial crime and fraud through onboarding and compliance screening processes, according to the latest True Cost of Compliance report from LexisNexis Risk Solutions.
The study of 254 regulated UK financial services firms found compliance costs rose by double digits (12%) in 2023, with the vast majority (95%) of firms reporting an increase. Just 2% said costs had fallen. It means that collectively, the sector is now spending an astronomical £38.3 billion on compliance each year, equivalent to Estonia’s GDP.
Costs have risen by nearly a third (33%) since 2021 – well above the rate of inflation – yet the NCA estimates that at least £36bn1 is laundered in the UK each year.
Firm-level financial crime compliance (FCC) cost increases have largely been driven by investment in technology over the past three years, according to the report, growing at twice the rate of employee-related costs. Technology-related roles also now, for the first time, make up over half (52.4%) of all FCC recruitment and training costs, up from a third (34.1%) in 2022, as firms build teams of technologists capable of operating the technology and interpreting the outputs.
Increasing customer volumes was also cited as a key driver of costs, with over half (52%) of firms reporting an increase and one in six reporting customer numbers rising by over 20%.
Despite the increase in customers, firms reported a significant drop in the cost of Know Your Customer (KYC) and identity verification operations, as an overall share of FCC costs, from a fifth (22%) to just 15%, as automation yields process efficiency gains. Similar benefits were realised in AML screening checks, alert remediation and internal investigations.
Steve Elliot, Managing Director of LexisNexis Risk Solutions said, “This year’s study features some stand-out good news stories, with firms and their customers reaping the benefits of sustained investment in technology over the past three years. Firms appear to be implementing more thorough financial crime controls throughout the customer journey, including more rigorous checks at onboarding and placing greater emphasis on ongoing monitoring, while the increased automation should be helping them deliver better customer experiences. What’s particularly encouraging is that, despite around 80% of Customer Due Diligence (CDD) processes on average now being automated, there’s no sign of a slowing in investment pace, 1Criminal Finances Bill Factsheet, Gov.UK with KYC, fraud checks, alert remediation and AML screening all being earmarked as priorities for further development.”
Turning to future investment, firms are clearly setting their sights on advanced analytics and AI. Process automation and machine learning are key areas of focus for a majority of respondents, with 40% saying they’ve already adopted these new technologies into CDD processes and a further 58% saying they plan to do so within three years. As a result, technology spend is expected to continue to be a key driver of FCC costs, pushing them up further by an estimated 6% in the next three years. Going hand-in-hand with AI adoption, firms are also prioritising data, with the majority expecting to continue to make improvements to their data quality and augment their existing data sources.
Steve Elliot continued, “Our study shows that the UK financial services sector is making a strategic move away from time and labour-intensive manual processes, in favour of more efficient, automated processes, with skilled staff providing oversight and focusing on nuanced investigations work. While this investment is continuing to push up costs in the short term, firms clearly see the longer-term value that technology like AI can bring, in helping to make financial crime detection and prevention far more efficient and effective and ultimately to drive more money laundering and fraud out of our financial system.
“The sector will need to continue to work hand in hand with regulators to ensure that AI and similar technologies can find their approved place in FCC processes, but assuming this is achievable, there’s no reason to doubt that additional cost and efficiency benefits can be realised across the entire customer journey. At this rate, we could see overall compliance costs starting to fall for a majority of firms by the end of the decade.”
External factors also played a prominent role in driving costs in 2023, with regulatory pressure remaining the most prominent. Other factors gained significant ground too however, with increased competition and geo-political factors polling higher this time. Concerns such as the evolving criminal threat and the cost of doing business meanwhile fell in prominence over the same period.
LexisNexis® Risk Solutions harnesses the power of data, sophisticated analytics platforms and technology solutions to provide insights that help businesses across multiple industries and governmental entities reduce risk and improve decisions to benefit people around the globe. 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 analytics and decision tools for professional and business customers. For more information, please visit LexisNexis Risk Solutions and RELX.
Media Contacts