LexisNexis True Cost of Compliance Study Finds Financial Crime Compliance Costs Hit Record High of U.S. $50.1 Billion in Asia Pacific

DigitalCFO Newsroom | 16 June 2022

Financial Institutions in China and Japan Accounted for Nearly 80% of the Costs .

LexisNexis® Risk Solutions released its latest LexisNexis® True Cost of Compliance™ Study – Asia-Pacific Edition. The study surveyed respondents in five markets – China, Australia, India, Malaysia and Japan – and projects the total cost of financial crime compliance will near the U.S. $50.1 billion mark in 2022. Financial institutions represented more than 80% of the total cost of compliance in the region at U.S. $40.8 billion.  

The analysis indicated that China and Japan accounted for 79.2% of all regional compliance costs at 43.5% and 35.7% respectively even though respondents in these countries accounted for only 40% of the total number of study participants. Higher costs in China and Japan are attributed in part to labor and technology, complying with tighter anti-money laundering (AML) regulations, increased geopolitical risks and evolving criminal threats. 

Seventy four percent (74%) of surveyed professionals are dealing with increasing compliance regulations amid higher screening volumes, growing complexity in compliance and the pandemic. Compliance professionals are addressing these challenges by expanding their operations teams, which contributed to higher labor costs on salaries (31%) and training (21%) over the past 18 to 24 months. Banks and investment firms have hired additional staff to manage increased workloads due to the rising volume of new business account onboarding.  

Fifty percent (50%) of respondents indicated that an additional driver of increased financial crime compliance costs included investing in technology solutions, including network systems that support remote working and software to conduct more rigorous compliance checks with less investigative time. The study also showed financial institutions across APAC that spend a higher percentage of their budgets on technology were more resilient, with an outcome of a 50% effectiveness gained from customer profiling and a 25% reduction in the average number of hours spent on due diligence. 


Key findings from the 2022 True Cost of Compliance Study – APAC edition: 

  • Top Three Triggers for Increased Compliance Costs – Increased geopolitical risk was named as the greatest trigger by 73% of respondents, with AML regulation (68%) and evolving criminal threats (63%) cited as the second and third greatest triggers respectively. These issues added complexity to sanctions screening, which resulted in financial institutions needing to spend more time to clear alerts and complete due diligence. Seventy two percent (72%) of larger firms indicated that financial crime compliance had a negative impact on productivity and customer acquisition. 
  • Money Laundering Through Ecommerce and Retail Channels – From alternative to mainstream, digital payments have become a common platform for money laundering, enabling criminals to create fictitious transactions that appear legitimate. Respondents who indicated that money laundering prevention is a challenge include:  
  • Ecommerce merchants – 68% 
  • Retail merchants – 60% 
  • Legal/Accounting services – 47% 
  • Real estate services – 45% 
  • Hospitality – 19% 
  • Media/Entertainment/Gaming/Gambling – 7% 
  • Emerging Financial Crime Risks – Percentage of respondents indicating the following as top risk concerns: 
  • Trade-based money laundering – 74%  
  • Digital payment-based financial crimes – 67%  
  • Cryptocurrency-related crime – 71%  
  • Money mules – 65%  
  • Third-party legal and finance professionals legitimizing illegal activity – 70%  
  • Supply chain corruption – 65%  

“Additional regulations and growing complexity in the compliance space are creating more challenges than ever for financial institutions in the Asia-Pacific region,” said David Haynes, vice president at LexisNexis Risk Solutions. “Technology has a role to play in complementing manual routines to improve the overall compliance processes with more efficiency and effectiveness.” 

Methodology 

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. Organizations represented banks and investment, asset management and insurance firms. All currency references in this study are based on USD. 

Download a copy of the True Cost of Financial Crime Compliance Study – Asia Pacific Edition.