North American industry spend more than U$31.5 billion a year on compliance
Keeping in line with regulations to tackle money laundering is a huge cost for the North American financial services industry.
A new report from LexisNexis Risk Solutions shows that the industry in Canada and the United States spends more than U$31.5 billion a year with those that fail to leverage effective compliance technologies shouldering a larger share.
The True Cost of Anti-Money Laundering (AML) Compliance study polled 140 decision makers who oversee compliance processes.
"US and Canadian financial firms effectively leveraging compliance technologies spend an average of $78,000 annually per full time compliance employee versus $140,000 for those who don't," said Daniel Wager, vice president, global financial crime compliance strategy for LexisNexis Risk Solutions. "This is significant, as human resource costs tend to trend upwards year-over-year and most sharply when firms are faced with increasing regulatory pressure or potential enforcement."
The report found that smaller firms tend to use less AML compliance technology to support due diligence, with labour constituting a large share of the total compliance spend (61% - 62%).
Despite mid-to-large firms using more compliance technology, there still is a slight weight towards labour at a 53% average portion of compliance spend as compared to a 45% average for technology investments.
Challenges, costs to rise
The cost of AML compliance averages an annual $1.4 million for small Canadian firms; $1.5 million for small US firms; $14 million for mid-to-large Canadian firms; $14.3 million for mid-to-large US firms.
"As compliance regulations grow in complexity, North American financial firms will be challenged to protect their reputation and avoid costly enforcement actions. The common reaction of adding more labour resources will not result in a profitable long-term solution, but instead often leads to diminishing returns, especially if investments in technology don't keep pace. Combining the right core data quality with technology results in cost savings, more effective compliance, and smoother customer acquisition. With faster due diligence, reduced friction and a more comprehensive understanding of customers, financial institutions often see a reduction in financial crime over the long term."
