UK financial services organisations are collectively spending £34.2 billion each year on financial crime compliance (FCC), according to the latest True Cost of Compliance report from LexisNexis Risk Solutions. This figure represents an increase of 19% since 2020.

The eye-watering figure of £34.2 billion is the equivalent of almost three-quarters of the UK’s defence spend for 2021/22, meaning financial services organisations are spending nearly as much protecting themselves and their customers against the risks of fraud and financial crime, as the entire UK is against threats to its national security.

And with more than 900 UK firms generating annual revenues of over £5 million, this puts the mean annual cost of compliance for a UK financial services firm at £194.6 million. On average, a typical firm is spending more on financial crime compliance each year than a top Premier League football team spends bankrolling the annual salaries of their multimillionaire players.

On average, financial services firms are spending over half-a-million pounds (£533,150) every day on FCC, equivalent to around £22,200 per hour, or £370 a minute.

Increasing regulatory expectations remain the greatest external driver of compliance costs, though other factors, including an evolving criminal threat and the cost of doing business are also important.

The push for greater automation was highlighted as the biggest internal cost driver. Technology spend as a share of the total amount spent on FCC, increased from 25% in 2020 to 30% in 2022. Combined with technology-related employment and training costs, total technology spend now represents half of all FCC costs (50.9%).

Technology is being most readily utilised throughout Customer Due Diligence (CDD) activities, which continue to consume the largest portion of overall FCC budgets and represent 67% of all spend.

Steve Elliot, Managing Director at LexisNexis Risk Solutions for the UK and Ireland said: “CDD is a priority focus area for compliance because processes can benefit hugely from investment in technology and software. Automated ‘know your customer’ and identity authentication processes not only strengthen fraud and financial crime checks but can also improve overall customer experiences when integrated as part of a seamless onboarding process.”

Most firms expect FCC costs to increase over the next three years by an average of 8%, largely to meet demand for CDD activities including KYC/IDV and fraud checks at onboarding, and transaction monitoring. 

Steve continued: “In one sense, the report makes for encouraging reading. It shows firms are investing hundreds of millions of pounds on transformative technology and training. However, this should be streamlining and improving processes to deliver efficiencies and productivity gains. The rising costs suggest financial services firms aren’t yet seeing these investments payoff.

“One reason for this could be that firms’ overall risk management strategies remain extremely fragmented. Day-to-day processes are siloed, feeding inefficiencies, or failing to make the most out of the capabilities offered by the technology, software, and data sources that organisations are investing in.”

LexisNexis Risk Solutions predicts that rising financial crime compliance spend, coupled with the increasing emphasis on combined fraud and AML screening operations, will accelerate a move towards fraud and financial crime risk orchestration.

Whilst risk orchestration is still in the early stages of adoption, more and more firms are realising the benefits of better connecting the systems and data sources used to combat fraudulent and criminal activities.

Steve concludes: “Risk orchestration brings together all the various elements of fighting fraud and financial crime. It’s a more harmonious approach that reduces efficiencies and duplication of processes and effort. Firms are realising it’s a strategy that can save time, expense, and resource, while improving overall performance. As FCC costs continue to rise to exponential levels, risk orchestration is looking increasingly like a next-generation solution.”

To download the full True Cost of Compliance report, visit https://risk.lexisnexis.co.uk/insights-resources/white-paper/true-costs-of-compliance.