Financial Services Deals Chart of The Month: Increased spending on compliance fails to reduce economic crime
August 22, 2016
- Spend on fighting economic crime is increasing
- Level of reported crime is rising in spite of this
- New thinking needed – 4 areas to target spending on compliance
“Financial services organisations need to radically rethink crime protection and prevention.”
Now some may say that’s quite a bold statement. But, as our 2016 Global Economic Crime Survey shows, economic crime in financial services outpaces other industries. And this is despite the fact that over half (53%) of the 1,513 respondents to our survey reported that spending on fighting economic crime was increasing….and 55% expect that it will continue to increase. Simply put, financial services organisations have struggled to join the strategic dots across the growing volume and variety of economic crime.
Compliance spend rises, cost of crime rises
Despite this increase in spend on compliance and being continuously under the scrutiny of regulators, the industry hasn’t managed to substantially reduce the level of reported crime. As you might expect, the level of investment in compliance outpaces the wider business world. As the chart below shows, the cost impact of crime has also increased, with 46% of those experiencing losses valuing them at up to $100,000 for every crime. Almost a quarter (24%) saw losses of between $100,000 and $1m.
As my colleagues have been highlighting over the past few months, financial organisations need to reduce their costs. In July's financial services deals chart of the month, Neil Bindoff suggests that a paradigm shift is required in banking stipulating that they need to migrate to radically lower cost models. In their video Magee and Richard Thompson discussed, amongst other topics, how recent deals and disposals have left banks with a residual cost base of core businesses that is out of kilter with their income…and they need to exit these stranded costs.
New thinking needed
Set in this wider context of the need to reduce costs, new thinking is needed to make investment in compliance deliver more value and tackle economic crime. There is a need, across financial services, for new approaches and technologies to more effectively target areas of greatest risk.
Culture has been an area of focus in the wake of the financial crisis and this needs to continue to more firmly embed compliance behaviours into the heart of organisations. Regulators also have a part to play by keeping rules up to date with developing technologies and encouraging innovative ways to tackle crime.
Where to invest in compliance?
Over a third (35%) of respondents to our survey thought that financial crime had high or medium impact on relationships with regulators and described the cost of remediation and compliance as “staggering”. With this backdrop, financial services companies need to target spending on compliance where it will make the biggest difference. For sophisticated global institutions, this means:
- Automating labour intensive processes;
- Improving the quality and accessibility of information;
- Making use of utilities for complex processes like customer onboarding (whether jurisdictional or industry focused models); and
- Evaluating new, more effective, technological detection methods including blockchain, biometrics and data analytics.
In summary, financial services organisations need strategic financial crime risk assessment frameworks to make sure policies and compliance programmes target the areas of greatest risk. The best way to tackle financial crime is by embedding the latest strategies and technology into day-to-day operational decision making.
Download the UK report from our Global Economic Crime Survey here
Download the financial services Global Economic Crime Survey here
Get in touch if you’d like to discuss any of the issues I’ve raised here.