Obviously so, but one study suggests that investing in compliance technology over labor had helped huge firms to buffer the effect.
In a study of 231 decision-makers in four Asia Pacific countries that were managing Know Your Customer (KYC) remediation, sanctions monitoring, financial crime transaction monitoring and/or compliance operations, the total projected cost of financial crime compliance had increased significantly for the “larger” financial institutions.
The study, commissioned by LexisNexis Risk Solutions, was conducted in Sep and Oct 2020 in Indonesia, Malaysia, Singapore and the Philippines, with banks, investment, asset management and insurance firms classified as “larger” if their total assets exceeded US$10bn.
All the financial institutions in the study had grappled with the challenges of the past calendar year, but firms that focused more of their compliance resources on technology reported financial and process benefits. Compliance professionals indicated that when technology had a larger share of the budget, the business had improved risk management and more robust data to help support more informed customer relations. These respondents felt they had been buffered from excessive increases in compliance costs driven by regulatory needs.
Compliance and tech spend
By the survey data, it seemed that the respondents that had allocated a higher percentage of compliance spend to technology had comparatively lower overall compliance costs, at an average of US$14.6m per annum compared to US$18.1m for those dedicating higher spend to labor.
Those respondents that had allocated a larger share of their financial crime compliance costs to technology had lower costs at US$61,300 per compliance professional annually compared to US$115,400 for firms that had allocated more for labor.
In general, respondents with above-average compliance spend on technology solutions were less challenged during the customer acquisition process: 39% of mid- to large firms had indicated this as a challenge compared to 70% of firms that had indicated below-average technology expenditure.
Compliance professionals reported that the pandemic negatively impacted on the following business areas and issues:
- Customer risk profiling: 63%
- KYC for account onboarding: 74%
- Sanctions screening: 75%
- Efficient resolution of alerts: 63%
- Positive identification of sanctioned entities or politically exposed persons (PEPs): 58%
- Resource efficiencies: 65%
In general, survey respondents suggested that more technology investment elevated human resources to focus on more process-critical tasks such as alert remediation.
The report concludes that the total projected cost of financial crime compliance increased significantly for larger financial institutions in the four APAC markets: the cost of compliance was US$12.06bn, with larger financial institutions representing US$6.49bn. India represented 46% of these costs at US$5.51bn due to significantly more financial services institutions in that market.