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The cost of AML compliance across U.S. financial services firms equaled $25.3 billion per year, based on survey responses to a LexisNexis survey.

The report shows that smaller firms are hit hardest, relative to their bottom lines, as the cost of AML compliance reaches up to .83 as a percent their total of assets, compared to larger firms, which see costs up to .08% of total assets. These costs are driven by the fact that certain overhead investment requirements exist when implementing an AML program, regardless of scale.

Daniel Wager, vice president, global financial crime compliance, LexisNexis Risk Solutions, comments: “As compliance costs rise, mid- to large-sized firms are using a wider array of newer technologies and data sources to prevent financial crime. While these firms report a higher average compliance spend per year ($18.9M), they are actually lowering the cost of compliance. The overarching goal is to achieve compliance with greater efficiency and with less human capital.”

The executives surveyed reported that regulatory reporting, customer risk profiling and sanctions screening are among the key challenges for U.S. financial firms. Operational inefficiencies pose challenges to those firms that use less technology. Financial institutions are looking to leverage AML compliance processes to better understand/manage their customer relationships. AML compliance processes can improve financial risk management and benefit other business functions, when more technologies are used.

The findings also show that implementing a layered approach to AML compliance technology may not only be necessary, but also crucial to improving AML compliance processes. Firms that use a layered solutions approach, using multiple services like cloud-based KYC procedures, shared interbank databases and machine learning/AI, take significantly less time to complete due diligence than those using just one of these alone. Many firms are still relying on manual efforts with their AML compliance technology, which is not optimal for either performance or cost-effectiveness.

The $25.3 billion figure is based on responses from small (under $10 billion in total assets = $12.3 billion in cost) and mid to large (over $10 billion in total assets = $13 billion in costs) sized firms. LexisNexis Risk Solutions conducted past True Cost of AML Compliance studies in Asia, Europe and South Africa, and this is the first to examine the United States cost of compliance.

by Alex Hamilton
Alex is Senior Reporter at IBS Intelligence, follow him on Twitter or contact him at: alexanderh@ibsintelligence.com