Risk Intelligence
In this, the second in our three-part series, we look at financial crime compliance budgets and resources and unpack where future spending is likely to lie.
On-the-ground insights
Conducted by CeFPro, in partnership with LSEG Risk Intelligence, the research involved surveying 120 financial services risk professionals across the US and EMEA to develop an understanding of the real-world challenges that define the risk space. One-on-one interviews were also conducted.
Resource and budget constraints
Survey respondents report sluggish budgets during the 12 months preceding the survey, with many flagging this as a key concern and saying that they worry insufficient resources will mean they will struggle to “play catch up” in meeting future risk challenges:
- Under half (47%) of respondents said their organisation’s overall budget for financial crime compliance efforts increased in the past year, and a further 39% recorded no change in this budget.
For those facing budget constraints – or even static budgets – concerns are tangible: industry experts revealed in interviews, for example, that the sheer scale of sanctions compliance in the face of ongoing updates and changes means that budgets would need to be increased just to remain compliant in this one area.
In addition, as technology advances and financial criminals become increasingly adept at leveraging this technology to commit fraud and other predicate crimes, organisations themselves must ensure that they keep pace with developments in the emerging tech space. Ongoing digitalisation and the continued reduction of manual processes are both essential, but both require upfront budget.
As the demand for efficiency and a reduction in manual intervention continues, upfront budget is required to develop programmes that can be automated.
The state of financial crime compliance programmes in US and EMEA | 2024
Overall, our research suggests that budget pressure is a very real concern, and that for many organisations a resource reset is needed. Given this, what do respondents envisage going forward?
On the horizon
Interestingly, many respondents anticipate an increase in the effort and resources that will be allocated to key risk management areas – including KYC screening, sanctions screening, third-party due diligence, identity verification, reducing false positives, and more – in the future.
In fact, increases are anticipated in most areas, with the top three selected by respondents being:
- KYC screening
Over two thirds (68%) of risk professionals expect the effort and resources their organisation allocates to KYC screening to increase going forward. Screening is a vital first step that can help organisations identify potential financial crime risk early in the game, and as such forms the foundation of any successful risk management strategy.
- Identity verification
A substantial proportion (65%) of those surveyed expect more of their organisation’s budget and resources to be allocated to identity verification in the future. Given rising financial crime levels and the sophisticated use of technology by threat actors, it is essential for organisations to implement robust, holistic risk management strategies. Verifying the true identity of customers and third parties is a key element of this.
- Reducing false positives
In addition, 65% expect a larger share of budgets to be channelled into reducing false positives. This is unsurprising, since sifting through false positives is time consuming and resource-intensive, and false hits can reduce the effectiveness of risk management strategies.
Another area of focus specifically highlighted during one-on-one interviews is ongoing, dynamic geopolitical risk and its impact on financial crime and risk strategy. This area of concern was reflected in the survey findings, with 59% of respondents saying they expect an increase in both allocated effort and resources relating to sanctions screening.
Several interviewees suggested that this broad expectation of increased budgets and resources is a result of the need to keep pace with new technology and that they anticipate increased spend on technology-related processes and controls to mitigate financial crime risk in key areas.
As risk professionals continue to face new challenges in a dynamic risk environment, where and how they spend their budget and resources will have a significant impact on their future success. It is therefore essential to channel available resources into the most critical areas that can help to pinpoint potential risk – and to invest in the right technology that can automate manual processes, boost efficiency and help to keep risk managers ahead of an evolving risk curve.
For more on financial crime read our previous insight in this series: Financial crime compliance: unpacking key risks and challenges.
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