According to a report from LexisNexis, the UK's spending on AML compliance is at an all-time high and expected to rise. The report, which was done in conjunction with Oxford Economics, is the most comprehensive analysis of AML compliance spend of its kind since Brexit, the data provider said and showed that regulation is the primary driver behind the rising compliance costs as opposed to criminal threats.
The findings revealed that regulatory burden, rather than a rising criminal threat, is the primary cause of the growth in compliance costs, as firms struggle to keep up with ever-increasing and changing regulatory requirements.
UK Firms are responding to mounting AML pressure by increasing spend on teams rather than technology, with 70% of budgets committed to people power
Changes in data privacy requirements, customer demand for faster payments and increasing geo-political risks were all cited as key external drivers of increased compliance costs. The implementation of the Fifth Anti-Money Laundering Directive (5MLD) alone, is estimated to be costing the average UK financial institution around three-quarters of a million pounds.
Rising costs are compounded by significant AML inefficiencies, the report found, including data quality, system failures, gaps in IT infrastructure, ineffective internal tools and outdated technologies.
The research further revealed that over half (53%) of compliance budgets are spent on processes required to onboard new clients, such as Customer Due Diligence (CDD) checks, remote ID & verification checks and risk assessments, driven in part by the shift in demand for online services fuelled by successive lockdowns. An additional 14% of budget is consumed by investigations and evidence gathering relating to enhanced due diligence checks.
While alert investigations account for only around 6% of AML spend, the resource burden is high, as another LexisNexis Risk Solutions report in 2017 revealed, firms spend more than 20 hours and 3.7 members of staff remediating even standard risk customers, 90% of which turn out to be false positives.
The research shows that the rapidly increasing cost of compliance to firms is expected to continue to rise in the next three years, with predictions putting the total cost at over £30bn by 2023.
With the increasing pressures, finding the right talent and utilising skillsets efficiently will be essential in managing the rising costs. With a large portion of the costs currently being people power, there is huge potential for those who manage this correctly
