Skip to main content

India's Massive Compliance Costs: ₹3.9k Billion

· 3 min read
Javier Morales
Fraud Risk Analyst

Amidst a dynamic geopolitical landscape and frequent legislative changes, financial institutions in India are facing mounting compliance costs. According to the latest study by Forrester Consulting, 98% of Indian financial institutions reported an increase in financial crime compliance expenses. This reflects the strict regulatory pressures that institutions are subjected to.

Staggering Compliance Costs in India​

The study, which polled 1,181 senior decision-makers at financial institutions worldwide, including 271 respondents from India, China, Japan, Singapore, and Australia, revealed the following:

  • Total Annual Cost of Financial Crime Compliance in India: ₹3,923 billion

Key Drivers of Financial Crime Compliance Costs in India​

Financial crime compliance costs in India are substantial, primarily driven by the following factors:

1. Labour/Resource Costs 💼​

Labour costs represented the biggest chunk of the total financial crime compliance costs in India, accounting for ₹1,373.6 billion, or 35% of the total.

  • Key labour-related challenges in India:
    • Skills shortage
    • Training and development
    • Turnover and retention
    • External consultants

2. Technological Challenges 💻​

Digital transformation and the adoption of innovative technologies such as artificial intelligence (AI), cryptocurrencies, and digital payments have ushered in new risk typologies. Financial crime involving cryptocurrency saw a 33% surge over the past year, while financial crime involving digital payments rose by 40%. Corruption within supply chains (65%) and trade-based money laundering schemes (67%) also pose significant challenges.

3. External Costs 💰​

Costs related to outsourcing compliance obligations to third-party vendors added up to ₹57 billion, further contributing to India's total compliance expenses.

Key Challenges in Financial Crime Compliance Operations in India​

Institutions in India face several challenges in their financial crime compliance operations:

1. Positive identification of sanctioned entities or PEPs 🛡️​

Ensuring the accurate identification and screening of sanctioned entities (PEPs) and politically exposed persons (PEPs) continues to be a major concern for financial crime compliance teams in India.

2. Customer risk profiling 📊​

Effectively assessing and profiling customers to mitigate risks associated with financial crime has posed a significant challenge.

3. Regulatory reporting 📃​

Complying with diverse and complex regulatory reporting requirements remains a challenge.

4. Processing non-Latin scripts 📜​

Handling data in non-Latin scripts and adhering to specific data formats add to the operational complexities.

Conclusion​

The high costs and challenges associated with financial crime compliance have become a significant concern in the Indian financial sector. Institutions must adopt a strategic approach to balancing the need for effective financial crime compliance with providing a seamless customer experience.

Download the APAC True Cost of Financial Crime Compliance Study, 2023 for guidance on this front.