The total cost of financial crime compliance in Asia-Pacific is growing, and will near the $50.1 billion mark in 2022, mostly for financial institutions, which represented more than 80% of the total cost.
According to the latest LexisNexis True Cost of Compliance Study – Asia-Pacific Edition (which covers China, Australia, India, Malaysia and Japan), 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.
In fact, 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 add complexity to sanctions screening, which resulted in financial institutions needing to spend more time to clear alerts and complete due diligence.
E-commerce merchants and retail merchants in particular reported that money laundering prevention is a challenge, as digital payments have become a common platform for money laundering, enabling criminals to create fictitious transactions that appear legitimate.
The report also found that 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.
Meanwhile, 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.
“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.”
The report is available here.