Crime compliance tipped to cost financial services industry $3.6bn

Driven by the increased compliance staff hiring and the complexity of preventing financial crime, LexisNexis Risk Solutions' first Australian edition of the True Cost of Compliance study surveyed 50 decision-makers in the Australian market between December 2021 and February 2022.

LexisNexis data revealed that the exposure of Australian financial firms to financial crimes has increased in the past 18 to 24 months. Eighty percent of Australian compliance professionals in financial firms ranked money laundering as the highest risk within their compliance operations.

According to David Haynes, vice president at Lexis Nexis Risk Solutions, e-commerce and retail were ranked highest as being of most risk for money laundering by Australian financial institutions.

"Amidst the growing regulatory pressures and evolving threats, retailers and e-commerce merchants should be prepared for increased costs brought by the digital transformation," Haynes added.

Respondents also indicated that third party professional service providers, such as accountants and lawyers, played a role in facilitating money mules to launder proceeds of predicate crimes.

As part of a larger Asia-Pacific regional study, the key Australian findings include:

Labour as a driver of increased compliance costs

More than two-thirds of financial institutions surveyed indicated they had increased compliance staff since 2019. Labour and training accounted for 54 per cent of average compliance costs while technology, including adding or maintaining networking or systems that support remote working during the pandemic, accounted for 41 per cent of costs.

Using technology to solve compliance challenges

Large financial institutions that invested in technology solutions to support financial crime compliance efforts experienced less severe impacts on cost and compliance operations (almost AU$25 million per annum; US$17.5 million), greater efficiencies and fewer pandemic-related challenges. Those that spent less than the industry average on technology spent an average of US$18.9 million (AU$28.7 million) on annual financial crime compliance costs.

Increased exposure to a range of financial crimes

Money mules and financial crimes involving digital payments are increased and contributed largely to rising financial crime compliance costs. Respondents reported increased exposure to trade-based money laundering (TBML), third-party fraud (supply chain corruption, professional advisors), proceeds of trafficking and the criminal use of new technologies and methods, including cryptocurrency.

Increasing anti-money laundering (AML) regulations, evolving criminal threats and ongoing impacts of the pandemic have driven higher financial crime compliance costs to an estimated AU$27.6 million (US$19.2 million) for larger Australian financial institutions and has led to increased investments in both labour and technology.

The True Cost of Compliance APAC study surveyed 253 banks, investment, asset management and insurance firms' decision-makers within the financial crime function across Australia, China, India, Japan and Malaysia. Organisations represented banks and investment, asset management and insurance firms.

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