Banking Regulations and Financial Crime in the UK: A Costly Conundrum

The cost of financial crime compliance continues to rise in the UK, with banks and fintechs spending a staggering £34.2 billion annually on anti-money laundering (AML) and customer due diligence measures.

The True Cost of Compliance

According to the latest report from LexisNexis Risk Solutions, the mean annual cost of compliance for a UK financial services firm is £194 million. This amount could bankroll the salaries of top Premier League football teams. Technology costs have grown as a share of total Financial Crime Compliance (FCC) spend, increasing from 25% in 2020 to 30% in 2022.

Fragmented Processes

Despite significant investment in technology and training, banks are yet to see a corresponding reduction in annual FCC spend. Customer Due Diligence activities consume the largest portion of FCC budgets, rising from 53% to 67% since 2020. While automation can strengthen fraud and financial crime checks, as well as improve customer experiences, end-to-end processes remain fragmented, leading to inefficiencies.

Disjointed Risk Management

The report suggests that firms are making well-intentioned investments in automating distinct processes within the compliance workflow, but overall risk management strategies remain disjointed. Day-to-day processes are siloed, failing to leverage the capabilities offered by technology and software.

A Glimmer of Hope?

However, there is a glimmer of hope as firms expect their annual FCC costs to rise by an average of 8% over the next three years - a slower growth rate than the 19% increase seen in the past two years. Risk orchestration technology could help banks maximize their investments by organizing and optimizing fraud and financial crime prevention measures.

The Future of Compliance

The sheer volume of FCC activities highlights that many firms are going above and beyond to protect themselves and customers against financial crime, despite the growing costs of compliance. With efficiency gains increasingly hard to come by, the sector may soon reach a tipping point.