Eugene Grygo, Chief Content Officer, FTF News
A few weeks back I focused on the fines and penalties that firms paid to government authorities for violating anti-money laundering (AML) restrictions, know your customer (KYC) requirements, and economic sanctions. This time, however, I am focusing upon the money that the securities industry spends to be AML compliant, which as it turns out, is more than $25 billion annually.
A recent report from LexisNexis Risk Solutions, a part of RELX Group, has uncovered a total AML compliance price tag for U.S. financial services firms “equaled $25.3 billion per year based on survey responses from more than 150 decision-makers at banks, investment, asset management and insurance firms.”
This and other fun facts can be found via the inaugural “2018 True Cost of AML Compliance” report for the United States. (LexisNexis Risk Solutions officials say that past True Cost of AML Compliance studies were done for Asia, Europe and South Africa, and this is the first for the U.S.)
“The report shows that smaller firms are hit hardest, relative to their bottom lines, as the cost of AML compliance reaches up to .83 as a percent their total of assets, compared to larger firms, which see costs up to .08 percent of total assets,” according to a LexisNexis Risk Solutions statement. “These costs are driven by the fact that certain overhead investment requirements exist when implementing an AML program, regardless of scale.”
In fact, the breakdown for the $25 billion is as follows based on feedback from: small firms, less than $10 billion in total assets, paid a total of $12.3 billion in AML compliance costs; and mid-to-large sized firms, more than $10 billion in total assets, shelled out $13 billion for AML compliance, officials say.
“As compliance costs rise, mid- to large-sized firms are using a wider array of newer technologies and data sources to prevent financial crime. While these firms report a higher average compliance spend per year ($18.9M), they are actually lowering the cost of compliance. The overarching goal is to achieve compliance with greater efficiency and with less human capital,” says Daniel Wager, vice president, global financial crime compliance for LexisNexis Risk Solutions, in a prepared statement.
Surveyed executives add “that regulatory reporting, customer risk profiling and sanctions screening are among the key challenges for U.S. financial firms,” according to a company statement. “Operational inefficiencies pose challenges to those firms that use less technology. Financial institutions are looking to leverage AML compliance processes to better understand/manage their customer relationships.”
The survey also found that:
- Implementing a layered solutions approach to AML compliance technology may be needed — services such as cloud-based KYC procedures, shared interbank databases and machine learning/artificial intelligence techniques “take significantly less time to complete due diligence than those using just one of these alone;”
And “many firms are still relying on manual efforts with their AML compliance technology, which is not optimal for either performance or cost-effectiveness.”
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