Cost of compliance for AML regulations in UK hits the roof

Karthik Subramanian

A survey undertaken by LexisNexis Risk solutions across financial firms has shown that the cost of adhering to compliance procedures exceeds the cost of criminal threats themselves.

Demand for compliance experts at all-time high

The survey was conducted across 300 financial institutions in the UK and shows that the period of Covid and any extra coverage of money laundering by the media leads to extra scrutiny by the regulators and this, in turn, puts a lot of burden on the compliance department in the firms driving up the costs.

The survey calculated that a total of around £28.7 billion was spent annually in the UK as compliance costs and this is expected to exceed £30 billion very soon. When this is compared to the £37 billion that is the annual cost of organized crime, we have a situation where the compliance cost is the same as the cost of the crime itself.

“We were surprised, almost disappointed, about the cost of AML compliance to the financial services sector,” laments Steve Elliot, managing director, LexisNexis Risk Solutions, UK and Ireland.

What is even more disappointing is the fact that the compliance costs far exceed the total criminal funds that are recovered, making it a big question whether compliance serves the purpose that it was supposed to.

Not just the regulation, the firms said that the interpretation and the understanding of the compliance procedures in itself take a lot of time as well as cost as the complexity of all the laws and the regulations make it difficult for the compliance department in each firm to correctly interpret them and implement them across the company.

The survey also says that Brexit has added more layers of complexity to the compliance procedures and also raised the uncertainty for the financial firms over what the next set of regulations would be.

With the increasing costs of compliance and the associated complexity, what we are seeing is that more and more financial firms and brokers are choosing to move to other countries where the regulations are less. We are also seeing a trend of platforms taking an FCA license but using it as a front for carrying on their operations in countries other than the UK. While the FCA and other regulatory authorities continue to do a good job of bringing in more regulations to help the retail and institutional clients, the financial services firms seem to be caught in a bind as rising compliance costs need to be passed on to the clients and this would affect business in the long run.

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