Cost of Compliance is Rising: How to Cut Down Your AML Costs

The landscape of financial crime compliance is constantly evolving, and organisations must stay informed in order to maintain a compliant and secure financial environment. Anti-Money Laundering (AML) compliance has become a significant challenge for financial institutions, with the costs of compliance rising sharply in recent years. According to a study by Forrester, the total cost of financial crime compliance across Australia, China, India, Japan and Singapore currently stands at about US$45 billion a year.

As the cost of AML compliance continues to increase, it's becoming increasingly important for organisations to take steps to reduce their AML compliance costs while maintaining a strong compliance program. For example, a study by the Competitive Enterprise Institute reports that large firms are now reporting the average cost to maintain compliance can total up to $10,000 per employee.

Reducing AML compliance costs is critical to ensuring financial institutions can continue to effectively fight financial crime while avoiding costly compliance mistakes. In this blog, we will discuss how organisations can reduce the cost of AML compliance while maintaining a robust compliance programme.

Understanding the Factors Driving AML Compliance Costs

The compliance costs associated with human resources, technology, infrastructure and outsourcing are increasing due to the following reasons:

Complex regulations and laws 

The financial industry is subject to complex regulations and laws that are designed to prevent financial crimes. These regulations can vary from country to country, and they often change as new threats emerge. As a result, financial institutions must constantly adapt their compliance processes to meet these evolving requirements, and this can be costly.

Increased risk and scrutiny 

The rise of digital financial services has led to increased risk and scrutiny for financial institutions. Customers expect a seamless and secure experience, and regulators are becoming more aggressive in their efforts to prevent financial crimes. This increased risk and scrutiny requires financial institutions to invest in new technologies, systems, and processes to detect and prevent financial crimes.

Complex Sanctions

As financial institutions face the task of meeting complex sanctions requirements, many compliance departments are increasingly adopting automation and outsourcing strategies to streamline their operations.

Technological advancements and requirements 

Technological advancements in the financial sector have led to new opportunities for financial institutions to serve their customers more effectively. However, these advancements also bring new challenges, such as the need for greater cybersecurity measures and the need to ensure that data is properly secured and protected. These requirements can drive up the cost of AML compliance as financial institutions must invest in new technologies and systems to meet the demands of regulators, customers, and the market.

Strategies for Reducing the Cost of AML Compliance

Leverage technology and automation

One of the most effective ways to reduce the cost of AML compliance is by leveraging technology and automation. This includes using advanced systems to detect and prevent financial crimes such as money laundering, fraud, and terrorism financing. Automated systems can monitor large amounts of data and transactions in real time, identify suspicious activities and trigger alerts, reducing the need for manual monitoring and review. This can help organizations save time and money and reduce the risk of human error.

Collaborate and share information with other financial institutions

Another strategy to reduce the cost of AML compliance is by collaborating and sharing information with other financial institutions. This can be done by sharing best practices, exchanging information about suspicious activities and joining forces to investigate potential financial crimes. By pooling resources and expertise, financial institutions can reduce the costs associated with AML compliance and improve the overall effectiveness of their AML programs.

Implement a risk-based approach

A risk-based approach is another strategy that organizations can use to reduce the cost of AML compliance. This approach involves focusing AML resources and efforts on higher-risk areas and customers, rather than applying a one-size-fits-all approach to all customers and transactions. By focusing on the areas that pose the greatest risk, organisations can reduce the cost of AML compliance and improve the overall effectiveness of their AML programs.

Ensure efficient processes and resource allocation

Finally, organizations can reduce the cost of AML compliance by ensuring that their processes and resource allocation are efficient. This involves streamlining AML processes, reducing duplications and waste, and ensuring that resources are being used effectively. By improving the efficiency of AML processes and resource allocation, organizations can reduce the cost of AML compliance and improve the overall effectiveness of their AML programs.

Maintain the right balance between compliance effectiveness and customer experience

Maintaining a harmonious balance between compliance effectiveness and customer experience is crucial for financial institutions in the digital age. Those that can provide seamless customer onboarding and transaction experiences will emerge victorious in the competitive landscape. Achieving this balance involves optimising KYC and onboarding processes, reducing false positives, and ensuring that a higher number of legitimate transactions are processed smoothly without causing any inconvenience to the customer.

Efficient and Effective AML Compliance with Tookitaki

Tookitaki's FinCense offers a comprehensive and automated solution to help financial institutions meet AML compliance requirements. Its four modules - Transaction Monitoring, Smart Screening, Customer Risk Scoring and Case Manager - work together to automate processes, implement a risk-based approach and ensure efficient process and risk allocation. FinCense provides holistic risk coverage, sharper detection, and significant effort reduction in managing false alerts in compliance processes. 

The Transaction Monitoring module utilises powerful simulation modes for automated threshold tuning, which allows AML teams to focus on the most relevant alerts and improve their overall efficiency. The module also includes a built-in sandbox environment, which allows financial institutions to test and deploy new typologies in a matter of minutes. It detects and flags suspicious transactions with superior accuracy. The automated process helps financial institutions reduce the time and cost associated with manual transaction monitoring. This module helps reduce false positive alerts and provides a clear and concise view of the transaction data for efficient investigation and reporting.

The Smart Screening module helps financial institutions screen their customers against a comprehensive database of individuals and entities that have been identified as high-risk. By automating the screening process, financial institutions can reduce the risk of non-compliance with AML regulations. The module also includes a robust rule-based engine to allow financial institutions to set their own risk-based rules and criteria. The Customer Risk Scoring module uses advanced algorithms to analyze a customer's behaviour, transactional history and other relevant data to determine their risk level. This helps financial institutions to allocate their resources and focus their efforts on high-risk customers.

The Case Manager module provides a centralized platform to manage and investigate suspicious activities. The module helps streamline the investigation process, reducing the time and resources required to resolve cases, and improving the efficiency of the AML compliance program. With the ability to manage cases from start to finish, financial institutions can maintain a complete and accurate record of their investigations and maintain compliance with regulatory requirements.

Enabling Seamless Information Sharing: The AFC Ecosystem

The Anti-Financial Crime (AFC) Ecosystem is a separate platform developed by Tookitaki to aid in the fight against financial crime. It is designed to work alongside Tookitaki's FinCense to provide a comprehensive solution for financial institutions. The ecosystem facilitates effective information sharing between participating institutions. 

One of the key features of the AFC ecosystem is the Typology Repository. This is a database of money laundering techniques and schemes that have been identified by financial institutions around the world. Financial institutions can contribute to the repository by sharing their own experiences and knowledge of money laundering. This allows the community of financial institutions to work together to enhance their information exchange capabilities and reduce the risk of illegal activities slipping through undetected.

The Future of AML Compliance: Adopting a Proactive Approach

Tookitaki's AML solutions, including Transaction Monitoring, Smart Screening, Customer Risk Scoring, and Case Manager, are designed to support financial institutions in their efforts to reduce AML compliance costs. With its AFC Ecosystem, Tookitaki also enables effective information sharing between financial institutions, improving the overall efficiency and accuracy of the AML compliance process.

It is imperative for financial institutions to take a proactive approach to reducing AML compliance costs. The cost of non-compliance can be substantial, and the benefits of reduced costs, improved processes, and increased efficiency make it a wise investment. If you're looking to take control of your AML compliance costs, we encourage you to request a demo of Tookitaki's solutions and see the benefits for yourself.