A Compliance Week article, “Study: Financial crime compliance costs top $42B in U.S./Canada,” reports statistics from a LexisNexis Risk Solutions study that shows financial institutions are spending significantly more money on combating financial crime in 2020 than in 2019. In fact, this year’s costs are up 33% compared to 2019, with U.S. firms projected to spend $35.2 billion and Canadian firms projected to spend $6.8 billion. A core contributing factor to increased costs is the coronavirus pandemic, which has disrupted normal procedures occurring within financial institutions.
Financial institutions were overwhelmed by the volume of first-time customers opening accounts to receive pandemic unemployment and stimulus payments. Furthermore, the sudden shift from face to face interactions with new customers to exclusively online interactions has made verifying the legitimacy and legibility of documentation more difficult. The LexisNexis study reports consequences of these unprecedented issues, including difficulties with customer risk profiling and Know Your Customer (KYC) account onboarding.
To combat challenges brought on by the pandemic, compliance personnel at financial institutions have had to work overtime. Although survey data from the LexisNexis study does not indicate that more compliance personnel are being hired, it does show that existing personnel are receiving raises, increased benefits, and bonuses. Experts from LexisNexis also predict that financial crime compliance spending will go to investigating fraud, anti-money laundering endeavors, and handling sanctions violations.
Although costs have increased significantly in 2020, not all financial institutions have been impacted equally. Institutions that invested heavily in technology have been better prepared to handle the difficulties brought on by the pandemic. This is evident in the study’s finding that these institutions have faced lower cost increases and fewer negative impacts from the pandemic than financial institutions that did not prioritize investing in technology.