Cost of Compliance Ails Finance Suite – Can AI Bolster the Budget?

A new study shows the “true cost” of financial crime compliance costs, but artificial intelligence may not be ready to pitch in and help – just yet.

A recent study of global financial institutions notes that 85% of financial companies say “enhancing the customer experience” is job one at their firms. The study, from LexisNexis, notes the core of any savvy corporate customer experience strategy is geared towards “fostering trust and delivering satisfaction”, even in the face of financial threats.

One major obstacle to cleaning up a company’s financial crime compliance initiative is the high cost of funding a formidable and effective strategy.

The same study points to the evidence for that assertion.

According to the LexisNexis report, global financial crime compliance amounts to $206 billion from the third quarter of 2022 to the third quarter of 2023, for financial services companies alone. That figure comprises approximately 12% of all total company financial compliance costs, amounting to $3.33 monthly for each global employee over the same time frame.

“The financial impact of crime resonates through businesses’ financial statements and consumers’ wallets,” notes Grayson Clarke, senior vice president of LexisNexis Risk Solutions. “In the pursuit of the common good, legislators and regulators collaborate tirelessly with financial institutions to establish necessary mandates. However, these endeavors aren’t without costs.”

Merging AI Into the Financial Crime Compliance Fight

On the upside, companies are pivoting to artificial intelligence to reinforce tough safeguards for the financial climate realm at an efficient price tag, although there’s not much evidence it’s doing much good.

Overall, 71% of finance executives told LexisNexis they’re already using AI and machine learning tools to “enhance data utilization via advanced analytics”. Also, 72% of survey respondents say they’re leaning on AI to improve their financial compliance procedures.

LexisNexis reports that even with a boost from advanced AI, companies aren’t seeing a big return on investment, likely due to growing pains in the early stages of AI adoption along with the natural ebb and flow of workplace operations, which can slow down artificial intelligence-fueled corporate compliance initiatives.

“Similar to historic changes in ways of working, problems with data quality, data silos, outdated legacy systems, and a lack of collaboration internally can create avoidable compliance activity and expenditure,” study analysts say. “CEOs, vice presidents, and directors in financial institutions globally are not complacent. Many new initiatives add to the ongoing complexity they face in meeting financial crime compliance requirements.”

What advice does LexisNexis have for compliance officers looking to get more of a bank for their buck when using AI to combat financial fraud? Having patience and sticking with the plan are at the top of that list.

“Our report underscores that financial institutions are making significant investments to stay compliant with financial crime regulations,” Clarke notes. “Effective collaboration within these institutions is pivotal for enhancing the customer experience while managing these costs.”

“Leveraging emerging technologies alongside existing solutions can empower institutions to achieve their objectives and deliver optimal customer outcomes,” he adds.

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