Financial services firms spend US$181bn a year on this globally

It's financial crime compliance and risk is rising as fraudsters take advantage of the pandemic

Financial services firms spend US$181bn a year on this globally
Steve Randall

The global financial services industry is facing increasing risk and  costs of financial crime compliance as criminals find more ways to defraud clients and firms.

A survey of 898 compliance decision-makers at firms in Canada, the US, Asia, Europe, the Middle East, and Latin America, reveals that the projected total cost of financial crime compliance in these markets amounts to $180.9 billion.

The research was conducted by LexisNexis Risk Solutions and focused on processes such as sanctions monitoring, know your customer (KYC) remediation, anti-money laundering (AML) and transaction monitoring.

While many of the findings were common across the regions covered, Canada and Latin America respondents were most likely to say that non-bank payment providers create additional compliance challenges and risk for financial firms.

More sophisticated criminals
The study reveals that the financial services sector needs to step up its resilience to financial crimes, while trying to rein in costs.

"As criminals become more sophisticated, a multi-layered solution approach to financial crime compliance is crucial to facilitating a more cost-effective, efficient compliance approach, as well as one that provides benefit to the larger organization,” said Daniel Wager, vice president, global financial crime compliance strategy for LexisNexis Risk Solutions. “Financial institutions should investigate both the physical and digital identity attributes of their customers, leveraging data analytics to assess risks and behaviours in real time."

The US and Europe were revealed to be hardest hit by the cost of financial crime compliance but across all regions, labour is the single largest driver of compliance costs. Increasingly complex regulations, data privacy limitations, and sanctions violations are all key cost factors.

"Utilizing the right technologies as compliance workforces grow allows organizations to decrease the cost of compliance per full-time equivalent (the labour component) and mitigate costs associated with lost business due to increased friction at onboarding,” added Wager. “Keeping FTE costs lower is essential to profitability, since labor tends to account for significant increased compliance expenses year-over-year."

AMF launches campaign
With the COVID-19 pandemic creating a perfect environment for fraudsters, Quebec’s Autorité des marchés financiers (AMF) launched a new awareness campaign this week reminding investors of the risks.

"Fraud prevention is central to our mission, and we believe it is important to issue reminders in these particularly challenging times. In addition to awareness activities, our teams are performing ongoing monitoring and are in direct contact with regulators in the other Canadian provinces and territories and elsewhere in the world," said Louis Morisset, AMF President and CEO. "Despite the current pandemic, the AMF is maintaining all of its services and making every effort to ensure that it is able to intervene in cases of fraud or when an offence is committed under the laws administered by it."

The AMF says that fraudsters are using the internet and social media to target consumers offer investment ‘opportunities’ in companies claiming to be involved in the treatment or prevention of the coronavirus.

They are also making what seem to be legitimate job offers via platforms such as LinkedIn with potential candidates asked to provide personal information, income tax details, or even access to financial accounts.