Australia's financial crime compliance cost surpasses AUD $5 billion

The newly released annual report on the true cost of financial crime compliance from LexisNexis Risk Solutions reveals that the total cost for Australia surpassed AUD $5.37 billion (US$3.5 billion). A heightened 98% of Australian financial institutions have observed an increase in the cost of financial crime compliance. Financial institutions are devoting a substantial 34% of their budgets to technology, the highest among surveyed nations, while distributing 39% to labour or resource costs.

These rising expenses are largely driven by technology costs. The report underlines a hefty investment requirement to meet the stringent regulations of financial crime compliance with up to 70% of businesses noticing rises in technology compliance-related costs. In terms of labour costs, 75% of Asia-Pacific institutions have cited these as the primary driver of cost inflation, indicating the need for investment in highly qualified compliance personnel to effectively meet compliance obligations.

The study also reveals an escalating trend towards cutting compliance costs in the next twelve months, particularly in Asia-Pacific where 81% of financial institutions are prioritising such reductions. Companies are grappling with how to streamline costs whilst remaining compliant with regulations, with 39% attributing the rise in compliance costs to intensified financial crime regulations and regulatory expectations.

Interestingly, technology continues to play a pivotal role in the developments of financial crime. There has been a marked increase in financial crime involving sophisticated uses of cryptocurrencies, digital payments, and artificial intelligence (AI). Such methods were identified by 23% of respondents reporting a more than 20% surge over the past 12 months in types of financial crimes. This indicates that organisations are trying to cope with the impact of these advanced criminal approaches within an already intricate regulatory landscape.

Matt Michaud, Global Head of Financial Crime Compliance at LexisNexis Risk Solutions explains, "The cost of financial crime compliance is clearly rising for financial institutions across APAC which is being felt by teams across the compliance workflow... As criminals adapt quickly, financial institutions require a partner with advanced tools, data and analytics to not only keep pace but to stay ahead."

The report offered advice for institutions to balance compliance needs with customer experiences. For instance, companies that can provide streamlined customer onboarding and transactions without hampering the customer experience are more likely to muster success. Also, as criminals utilise new technologies, financial institutions need to swiftly identify new crime patterns via advanced AI- and machine learning-based compliance models, as well as cutting-edge analytics. Efficiency could be improved and costs reduced by teaming up with an experienced and proven technology service provider.

The report compiled responses from 271 senior decision-makers responsible for financial crime compliance at the financial institutions across the Asia-Pacific region, highlighting key points related to the costs, current state and challenges of financial crime compliance operations.