New Examine Reveals the True Price of Monetary Crime Compliance



October 17, 2023

Digitalization has caused super alternatives for development and innovation throughout the monetary sector. Nevertheless, this evolution has additionally led to a brand new period of monetary crimes, new knowledge launched by LexisNexis Threat Options, a world knowledge and analytics firm offering fraud and danger prevention options, present.

These findings, shared within the True Price of Monetary Crime Compliance Report – 2023, draw on outcomes of a 2023 survey of greater than 1,100 world decision-makers that sought to look at how monetary establishments are navigating the bills and challenges ties to evolving monetary crime compliance necessities.

Outcomes of the examine discovered that the shift to digital banking has amplified establishments’ publicity to classy monetary crimes, particularly by way of digital funds, cryptocurrencies, and synthetic intelligence (AI) applied sciences, indicating that whereas digitalization has been a catalyst for progress, it has additionally given rise to extra subtle crime techniques.

A placing variety of respondents reported a surge in monetary crimes facilitated by digital funds (59%), cryptocurrencies (58%) and AI applied sciences (56%). These assaults exploit vulnerabilities in digital fee methods by utilizing subtle strategies to impersonate customers, conduct phishing scams, or manipulate transactions.

In North America and Latin America, monetary establishments reported a powerful uptake in monetary crime involving cryptocurrencies, whereas in Asia-Pacific (APAC), establishments reported being notably weak to monetary crime involving digital funds (65%) and AI (60%), stating that they’ve noticed a stronger uptake than another area.

Increased exposure to criminal activities, Source: True Cost of Financial Crime Compliance Study 2023, LexisNexis Risk Solutions

Elevated publicity to legal actions, Supply: True Price of Monetary Crime Compliance Examine 2023, LexisNexis Threat Options

Monetary establishments embrace knowledge analytics

The ever-evolving technological and financial surroundings has reworked the compliance panorama for monetary establishments and pushed prices additional up. 98% of the establishments polled this yr by LexisNexis Threat Options reported a rise in monetary crime compliance spending, which reached a complete annual price of US$206 billion, the examine discovered.

The total cost of financial crime compliance, Source: True Cost of Financial Crime Compliance Study 2023, LexisNexis Risk Solutions

The full price of monetary crime compliance, Supply: True Price of Monetary Crime Compliance Examine 2023, LexisNexis Threat Options

The elevated compliance burden is prompting monetary establishments to reevaluate their processes and search enhancements to knowledge high quality, know your buyer (KYC), inner compliance, anti-money laundering (AML), and transaction monitoring to enhance effectivity.

Of the monetary establishments surveyed, 83% of respondents revealed that they’re prioritizing harnessing enriched fee knowledge to combat advanced monetary crimes. These establishments want to leverage these knowledge to allow sooner processing instances, fewer fee rejections, and higher danger administration, the examine discovered. Enriched fee knowledge additionally permits establishments to enhance the client expertise whereas lowering the danger of non-compliance and publicity to monetary crime.

Outcomes additionally present that establishments are engaged on future-proofing themselves in opposition to unpredictable macroeconomic occasion. That is evidenced by the big proportion of respondents who indicated looking for to extend their operational resilience (80%) in addition to these specializing in optimizing their compliance prices (80%) to enhance profitability.

Priority initiatives for financial institutions over the next 12 months, Source: True Cost of Financial Crime Compliance Study 2023, LexisNexis Risk Solutions

Precedence initiatives for monetary establishments over the subsequent 12 months, Supply: True Price of Monetary Crime Compliance Examine 2023, LexisNexis Threat Options

The rise of digital funds

Over the previous 20 years, the fee providers trade has seen vital development. In 2022, world funds revenues reached an all-time excessive of US$2.2 trillion, up 11% from the earlier yr, knowledge from McKinsey’s 2023 International Funds Report present.

This development has been partly pushed by elevated adoption of fee providers by people and e-commerce retailers, with digital funds and on-line commerce, specifically, increasing quickly.

In rising markets, the place digital fee utilization has picked up at a quick tempo, fraud makes an attempt leveraging new fee strategies are rising in prevalence. A 2022 examine by LexisNexis Threat Options discovered that digital pockets fee scams, QR code fraud and crypto fraud witnessed among the many strongest uptakes that yr, with about 40% of respondents indicating having detected extra of those fraud varieties over the prior 12 months.

80% of respondents throughout the rising markets studied anticipate that fraud danger will enhance over the subsequent 24 months as companies proceed to embrace extra fee choices and as real-time fee develop into the norm.

Types of online fraud that witnessed the strongest uptake in 2022, Source: Digital Payment Fraud in High Growth Markets Study, LexisNexis Risk Solutions, Oct 2022

Sorts of on-line fraud that witnessed the strongest uptake in 2022, Supply: Digital Cost Fraud in Excessive Progress Markets Examine, LexisNexis Threat Options, Oct 2022

Digital funds have risen to prominence in APAC. Throughout the area, the usage of digital wallets greater than doubled their share of e-commerce transaction worth within the final 5 years, in accordance to a 2023 report by fintech answer supplier FIS. Equally, digital wallets’ share of fee transaction worth at point-of-sale (POS) grew sixfold throughout the interval.

Whereas digital wallets are already the main fee methodology in APAC for each e-commerce purchases and POS transactions, the agency initiatives that by 2026 their share of APAC transaction worth will proceed to soar, reaching 59% for POS transactions and 73% for e-commerce.

APAC consumers' preferred payment methods, Source: 2023 Worldpay from FIS Global Payments Report, March 2023

APAC shoppers’ most popular fee strategies, Supply: 2023 Worldpay from FIS International Funds Report, March 2023


Featured picture credit score: Edited from freepik

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