Financial Crime Compliance Costs Reach $61 Billion in U.S., Canada

Amid escalating financial crime compliance costs, financial institutions grapple with the rise of illicit activities involving cryptocurrencies and AI technologies.
By: | February 21, 2024
Topics: News + Notes

The annual True Cost of Financial Crime Compliance Study — U.S. and Canada, released by LexisNexis Risk Solutions, reveals that financial crime compliance costs have escalated for 99% of financial institutions, reaching a total of $61 billion in the U.S. and Canada.

The report highlights that technology costs related to compliance and know-your-customer (KYC) software have risen in 79% of organizations over the past year. Additionally, 78% of small financial institutions have seen higher increases in compliance costs related to labor compared to their mid- and large-sized counterparts (63%).

The study also sheds light on the emerging use of cryptocurrencies, digital payments and AI technologies as tools for illicit activities. In the past 12 months, 22% of companies reported significant increases in financial crime involving cryptocurrencies, while another 22% noted a heightened use of AI.

Matt Michaud, global head of financial crime compliance at LexisNexis Risk Solutions, emphasized the need for a strategic approach to financial crime compliance. He stated, “Organizations must proactively equip themselves with comprehensive data sets, advanced AI/ML-based compliance models and robust analytics within their financial crime compliance solutions to swiftly identify new crime patterns.”

The report also revealed that 70% of financial institutions are prioritizing cost reduction in the next 12 months. This focus on cost reduction is particularly prevalent among mid- and large-sized financial institutions: 44% identify the escalation of financial crime regulations and regulatory expectations as the primary factor driving increases in compliance costs.

In the face of these challenges, the study recommends balancing compliance effectiveness with customer experience, embracing new technologies to counter emerging financial crimes, and employing compliance tools and analytics to manage costs and enhance efficiency. These strategies are crucial for financial institutions to stay ahead of the curve in an increasingly complex regulatory landscape. &

The R&I Editorial Team can be reached at [email protected].

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