- LexisNexis Risk Solutions releases European wide results of its True Cost of AML Compliance Study conducted across five markets : France, Germany, Italy, Switzerland and The Netherlands
- USD 83.5 billion (EUR 70.1 billion1) is the True Cost of AML Compliance among European financial institutions, which face an existential challenge to adapt to new regulatory reality, in a context in which the EU's Fourth AML Directive is increasing pressure on compliance teams with potential significant fines and reputational damage
- Financial institutions of all sizes are hit by AML compliance costs and these expenses are only expected to grow with an increased volume of alerts and pressures on resources
PARIS and FRANKFURT, Germany, Sept. 19, 2017 /PRNewswire/ -- Over the past two years, overall anti-money laundering compliance costs in Europe have increased by 21% and financial institutions expect these to grow by a further 19% in 2017, while sanction compliance costs are expected to rise by 17% on average. These are the results of a survey carried out between April and June 2017, conducted by LexisNexis® Risk Solutions, interviewing 250 executives in charge of anti-money laundering (AML) compliance in five European countries. Such a development can be put into context against the backdrop of the 4th EU Money Laundering Directive having being transposed this year into various national legislations. This update to the directive calls for financial institutions to conduct enhanced due diligence on prospective clients.
The study found the True Cost of AML Compliance for European financial services companies equals US$83.5 billion2 (€70.1 billion).
Chart 1: True Cost of Compliance per Study Country (US$ in Billions)
According to the surveyed professionals, labour is the most significant component of AML compliance costs, with costs scaling upwards for larger firms and expected to increase in the coming years. The main challenge financial institutions are facing is the optimisation of risk management technology, as they attribute roughly three-quarters of their overall AML compliance spend to labour and the remaining percentage to technology. KYC and AML compliance programmes in particular, which concentrate over 70% of spend, are sizeable labour components in which intelligent risk management technologies could help to optimise the time of the compliance staff, enabling them to place their focus on activities such as human investigations and other reporting tasks.
A better use of technology could also result in increased profitability, as the total labour time spent on due diligence activities can result in a slower on-boarding processes. Indeed financial institutions are hit by what is known in business as the '80/20' rule – according to which 80% of effects are generated by 20% of the causes - resulting in the reality that a small proportion of total clients generate the majority of the total overall spend. The study underlines that on average, due diligence can take up to 30 hours for foreign corporate clients, while only 10 new accounts are opened monthly. Nearly three-quarters of the respondents reported losing up to 4% of prospective customers because of friction during onboarding, and felt that this could be due to procedural inefficiencies with their AML compliance structure.
The majority of financial institutions surveyed believe that changing their AML compliance procedures could lead to better management of customer relationships and risk management. This demonstrates that financial institutions in Europe, including banks and insurance players, have a strong understanding of AML initiatives and costs not only as a simple legal requirement but also as a strategic tool to grow and protect their businesses in an increasingly competitive market.
Thomas C. Brown, senior vice president, U.S. Commercial Markets and Global Market Development, LexisNexis Risk Solutions commented: "The workload of compliance teams in Europe is only getting heavier, with many jurisdictions reporting an upswing in false-positive alerts, which is perhaps a direct result of an evolving regulatory environment. Our new European study indicates that the cost burden of these higher AML requirements will create challenges for financial sector players and oblige many to streamline the way they work to create a more harmonious and effective balance between labour and technology. The good news from this LexisNexis Risk Solutions study is that most of the survey respondents are aware of the significant benefits in terms of client onboarding and corporate reputation that an operationally efficient AML compliance team can bring, which suggests banks will be better placed to help lending in the real economy in the coming years and ensure that Europe's economies become more aligned in terms of financial transparency."
Study Set up
This is the second study in a global series; with the True Cost of AML Compliance: Asia debuting in 2016. For the EMEA edition, 250 money laundering compliance officer were surveyed in France, Italy, Germany, Switzerland and the Netherlands. The survey was conceptualised by LexisNexis Risk Solutions and research was conducted between April and June 2017. Lexis Nexis Risk Solutions remained unnamed in the survey.
Get the Full Results
The overarching study titled, "True Cost of AML Compliance – Europe," and/or country-specific snapshots for the Netherlands, Germany, France, Switzerland and Italy can be requested by contacting Dominic Riding, Carsten Michael or Jean Creech Avent.
About LexisNexis® Risk Solutions At LexisNexis Risk Solutions, we believe in the power of data and advanced analytics for better risk management. With over 40 years of expertise, we are the trusted data analytics provider for organizations seeking actionable insights to manage risks and improve results while upholding the highest standards for security and privacy. Headquartered in metro Atlanta, LexisNexis Risk Solutions serves customers in more than 100 countries and is part of RELX Group, a global provider of information and analytics for professional and business customers across industries. For more information, please visit http://www.lexisnexis.com/risk/intl/en/
1 As calculated 14/09 according to an exchange rate of (1USD = 0.84 EUR) 2 Financial firms were asked to estimate the annual cost of the AML compliance operations including labour/resources, systems/data and other governance activities for all aspects of compliance such as customer due diligence, sanctions, screening and transaction monitoring, investigations, reporting, analytics/risk assessments and training.