Financial firms are spending almost £29bn per year to comply with anti-money laundering (AML) regulations, research claims.
All Financial Conduct Authority (FCA)-regulated firms, including peer-to-peer lenders, are mandated to have AML procedures in place.
But data provider LexisNexis Risk Solutions has warned that a “culture of over-cautiousness” means firms are spending almost £29bn a year on AML, the equivalent of more than half of the UK’s £53.3bn defence budget.
A LexisNexis report warns that firms are so worried about regulations that they “over-report” suspicious activity, which leads to higher volumes of work and more spending on “people-related costs,” rather than technology that could speed up and improve their systems.
The report claims that the regulatory burden, rather than increased crime, is pushing up AML costs.
Rising costs are compounded by significant AML inefficiencies, the report found, including data quality, system failures, gaps in IT infrastructure, ineffective internal tools and outdated technologies.
The report also found that firms are creating more work for themselves by erring on the side of caution, as a consequence of a fear of regulatory repercussions, if something is missed.
“The fact that increasing AML regulations, rather than an evolving criminal threat is the primary driver for increased compliance costs in the UK is a clear sign that the UK’s current AML approach requires wholesale change,” Steve Elliot, managing director of business services UK and Ireland at LexisNexis Risk Solutions, said.
“Building on past solutions is evidently becoming too costly and ineffective, and so they need to be redesigned for the modern age, using big data and technology instead of rules and manual processing.”