Tackling Financial Crime:
The costs of inefficiency within the UK

The cost of compliance for UK firms is still increasing, but where is all the money going? Asks Nina Kerkez.
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UK still number one place to launder money

It turns out that we as an industry of financial crime experts are no more effective now than ever before in fighting or preventing economic crime. Sure, the measures aren’t definitive, but one would think that with the constant evolution of contributory technologies like AI and machine learning, furthering of education of staff in the space and an ever-increasing regulatory focus, we should be better positioned, right? Apparently, not. The UK is the most lucrative market in the world for organised criminals as it pertains to fraud, yet for all we do to try to prevent it, we barely scratch the surface.

Financial crime compliance spend in 2023 is equivalent to three quarters of UK’s defence spend – that is an estimated £34.2bn. We continue to tick the boxes in our risk-based approaches, but, somewhat ironically, it seems being compliant and being truly effective at prevention aren’t the same thing at all. Is it that the economic crime is too vast of an area and leaving financial institutions to fight it on their own is too much to ask? Perhaps, although the government feels accountable for compliance and continues to push for greater information sharing amongst market participants.

Report: True Cost of Compliance 2023

What is the breakdown of AML compliance costs by process and how does the cost of technology compare against the spending on people? Find out in this AML report.

Our recent research also shows that the average cost of financial crime compliance for the averaged firm is £194.6m. Say that again, out loud! Put into terms us mere mortals will understand, that’s around £22,000 per hour. Inevitably, the impact of those costs is not felt evenly across firms either, with smaller firms and fintechs absorbing a higher impact on their margins. Meanwhile, external pressures, such as regulation, remain the biggest perceived driver for costs. By looking at recent fines issued to financial institutions in the UK, almost all were issued due to inadequate policies and procedures, rather than money laundering itself.

In geo-political news, government and the international community have used sanctions extensively to fight the war in Ukraine since early 2022. Our financial institutions are among the heroes fighting this war – observing strict controls on the sanctions designed to punish Russia and her allies. Surprisingly, they didn’t report a significant increase in costs in relation to the conflict – only about 3% rise in costs was reported by a minority of firms. Possibly this is due to sanctions preventative measures already being firmly in place. It goes to show, higher volumes don’t necessarily mean more cost, if the data and technology are doing the right things for you.

Lastly, expenditure on automation of FCC processes continues to increase, yet respondents state that they aren’t fully reaping its benefits. Encouraged by the regulators and wanting to stay ahead of the digitalisation curve, it seems many firms are piling multiple technologies on top of each other in the hope this will solve all of their problems. However, more technology doesn’t necessarily lead to more efficiency. The key is proper integration of systems that talk to one another and good quality data going in, so that good quality data comes out. Lack of ability to share data, privacy issues and safety concerns remain blockers to getting the best possible results to prevent financial crime, since technology is only as good as the data. Ultimately, there is still room for improvement, but the industry appears to be making some positive difference. The principal focus for many firms has been getting the right training in place for staff and improvements in data. We have also seen greater automation of CDD processes as well as the positive step of FRAML teams emerging – the combination of Fraud and AML functions within obliged institutions.

My crystal ball says costs will continue to rise, but we will continue to get better at understanding the benefit we are realising from our compliance spend. It won’t be just a ‘technology spend’ or ‘staff spend’, we will soon start to better understand the imminent and long-term value compliance provides to organisations, in acquisitions of new customers and in offering better products to them.

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