The Soaring Costs of
Financial Compliance
The Impact of Financial Crime Continues
The explosive growth of financial crime shows no sign of waning. In a recent survey of financial industry professionals, 2/3 of respondents reported that, in the past year, their organization experienced an increase in overall fraud rates 2, and 59% indicated they expect fraud levels to continue to rise.
The Growing Cost of Compliance
The advancing sophistication and scope of financial crime – compounded by a lingering, pandemic-induced economic upheaval – has sent operational costs skyrocketing.
For U.S. financial institutions (FIs), the estimated price tag for financial crime compliance has reached close to $46 billion – almost doubling since 2019 ($26.4 billion), according to a recent report released by Zoot partner LexisNexus. 4
Banks’ estimated compliance spending costs have increased
by more than 60% compared to pre-financial crisis levels. 2
The Global Economy
Managing financial crime in the current geopolitical arena is increasingly complex and expensive.
A rapidly evolving threat for economies of all sizes, financial crime accounts for 3.6% of global GDP.
Circumstances surrounding the war in Ukraine in tandem with U.S. – China tensions and sanctions against Russian entities continue to exacerbate the economy. 4 For financial institutions, effectively managing compliance in this volatile arena requires a substantial investment in human and technological resources.
The number of U.S. firms citing increasing geopolitical risk as a
top external trend driving up the cost of financial crime. 4
Complicating Circumstances
The rise in digital currency, de-fi, beneficial ownership disclosure requirements, etc., further complicates the navigation of an intricate regulatory landscape. The skyrocketing number of challenger and neo-banks, embedded finance suppliers, and P2P vendors demands financial services firms level up their competitive efforts, prioritizing digital transformation while balancing regulatory changes and revenue growth strategies.
In a 2022 survey, financial institution professionals reported beneficial ownership disclosure requirements as their most challenging AML compliance issue. 5
Necessary Resources
For FIs, everything from a lack of skilled resources and collections and recovery efforts to cybersecurity initiatives and legal expenses contribute to rising costs – requiring a balancing act.
Controlling costs and governing financial crime risk while driving revenue and delivering a quality CX requires a solid foundation for financial services organizations to grow confidently.
The rapid evolution of fraud tactics requires a robust framework of financial, human, and technological resources. Leveraging data within an advanced technology solution can reduce costs, minimize compliance challenges, improve cyber resiliency, and optimize financial crime management processes. Scalable technology is cost-effective and offers the flexibility to adjust to changing market conditions.
Competing Priorities
A report by Reuters examined how banks approach productive, compliant operations alongside effective financial crime management demands. The piece aptly distills the situation:
“Strong compliance functionality is difficult to achieve especially in the current climate. Firms should consider a wholesale review of compliance strategy. A board-sponsored directive that the compliance function evaluate the post pandemic position, the impact of new geopolitical tensions, refresh of skills and continue to invest in digital transformation, may go some way to untangling competing priorities.” 1
The Power of Data
To successfully detect, prevent, and manage fraud, banks must include anomaly detection, predictive analytics, and relationship detection in their strategy.
For example, deploying velocity checking is critical to detecting and thwarting card testing attempts. Fraud management technology offering a single, instant connection to multiple data sources is fundamental to this strategy.
“The range of data tools the banks have at their disposal are also evolving rapidly, which means that we can make better sense of our risk concentrations and risk drivers.” 6
Jamil Ahmed, Chief Compliance Officer – HSBC, Singapore
The Solution
With Zoot, banks and lenders deploy flexible, scalable, configurable, and easily updated processes to meet the demands of fraud evolution.
Empowering precise and profitable decisions, Zoot ensures financial institutions can meet or exceed emerging regulations, guidelines, and customer expectations – proven by more than three decades supporting some of the largest organizations in the world.
About Zoot
Zoot Enterprises is a global provider of advanced origination, acquisition and decision management solutions for some of the largest organizations in the world. We offer comprehensive and flexible platforms for specific business needs that include loan origination, fraud detection and prevention, data acquisition, and more.
Zoot is a leader in the technology industry. We enable clients to access hundreds of cutting-edge data sources in real time, and provide business user control that empowers our clients to adapt to their evolving strategies. Our cloud-based, secure processing environment delivers decisions in milliseconds and has the capacity to deliver billions of real time decisions annually.
For more than 30 years, we have launched solutions to market faster than the competition. We have partnered with influential U.S. and international organizations including major financial institutions, retailers, healthcare organizations and payment providers to foster excellence in multiple industries.
At Zoot, our promise is simple: To make our clients successful. We work closely with the top financial institutions in the world to deliver state-of-the-art solutions that satisfy the most demanding decisioning needs.
Zoot Enterprises can help you execute data agnostic, one-to-one decisions informed from all available sources. If you’re ready to improve your origination process and keep pace with the changing times, please contact Zoot today.
Sources
- The Cost of Compliance 2022: Competing PrioritiesLiberty Street Economics
- 62% of Large Banks Report Increases in Financial Crime
- The State of Financial Crime 2023
- Lexis Nexus: True Cost of Financial Crime Compliance Study
- 2022 Thomson Reuters Anti-Money Laundering Insights Survey
- Financial Crime Risk Governance Models Have a Long Way to Go
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