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Lexis-Nexis Financial Crime Report Urges Multi-Layered Approach to Compliance, ID Proofing

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Adopting a multi-layered approach to financial crime compliance and identity proofing is an essential best practice for financial institutions seeking to protect themselves from fraud and other criminal activities. That’s among the key findings of this year’s edition of LexisNexis Risk Solutions’ annual True Cost of Financial Crime Compliance Global Report.

The report – based on a survey of 1,015 financial crime compliance decision makers at financial institutions including banks as well as investment, asset management and insurance firms globally – suggests that firms that have spent more on technology solutions have benefited from smaller year-on-year financial crime compliance operations cost increases than those focusing more on manual solutions. They have also seen lower costs per full-time employee and experienced fewer pandemic-related challenges.

According to the report, the biggest risks facing financial institutions are misrepresentation of business ownership, fake identities, mobile/online channel transactions (which can be used to shield true identities), non-bank payment systems and cryptocurrencies. These translate into a series of challenges that firms need to address, including customer risk profiling, sanctions screening, efficient alerts resolution, complex payment chains and positive ID of politically exposed persons (PEPs).

Firms can take mitigating actions by putting in place a multi-layered approach that includes investigating both the physical (name, address, documents) and digital identity attributes (in terms of digital footprint, devices, behaviour of the entity), according to the report. Firms should assess both the individual (is this the right person?) and the transaction (are there anomalies?), and should incorporate both KYC (individual) and KYB (business) investigations processes. Finally, firms should leverage data analytics to assess risks and behaviours in real time, the report suggests.

The survey found that financial institutions allocating a larger share of their financial crime compliance budgets to technology experience less severe financial and compliance operations impacts. For instance, only 42% of those spending more than half their financial crime technology budget on technology reported significantly negative impacts from Covid-19 on their customer risk profiling, compared with 57% reported by those allocating less than half on technology. Similarly, those focusing more on technology were impacted less by the top compliance challenges as cited by those taking a more manual approach: 26% vs. 47% citing difficulty in accessing KYC data; 26% vs. 44% citing delayed onboarding of new accounts; and 20% vs. 42% citing more manual compliance activities.

More broadly, the report projected the total cost of financial crime compliance across all financial institutions at $213.9 billion in 2021, surpassing the $180.9 billion recorded in 2020. But there was less consensus on operational challenges with customer risk profiling, sanctions screening, regulatory reporting, identifying PEPs, KYC for account onboarding and efficient alerts resolution all similarly ranked as key challenges.

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