Heavy Burden: Cost of Compliance

Blog / Heavy Burden: Cost of Compliance

Compliance costs include the salaries of the compliance department within the company, regulatory reporting costs, and all systems for the process. As regulatory standards increase in industry and the company grows globally, the cost of compliance increases.

Compliance costs increase as a result of local, national, and international regulations. As the company operates in more jurisdictions, it has to comply with the regulations of other countries. Compliance costs are referred to as compliance overhead.

The globalizing world pushes companies to be global as well. Companies that do not say no to this call are increasingly going beyond being local. The globalization of companies requires them to adapt to variable regulators. Companies deal with different regulations and expanding jurisdictions to comply with anti-bribery, anti-terrorism, and anti-money laundering legislation from countries like the United States.

Compliance costs also include costs for establishing a culture of compliance in the company and any penalties for delays or non-compliance with the legal framework.

As a result of increased compliance costs, many companies have begun work to reduce the number of personnel they need to allocate to the compliance department.

Rising Compliance Costs

Markets in Asia, Europe, the Middle East, Africa, and America spend approximately $ 181 billion a year to maintain financial crime compliance. In a survey, 50% of the respondents stated that they spend 6-10 percent of their income on compliance costs. Huge firms report that the average cost of maintaining compliance is about $ 10,000 per employee.

The most important reason for these large numbers is the acceleration of regulatory change that has exploded in the last decade. The regulatory change has increased 500 percent since the 2008 global financial crisis and, not surprisingly, increased regulatory costs in the process. Compared to pre-crisis levels, retail and corporate banks saw operating costs for compliance increase by 60 percent.

After the economic crisis, companies' compliance costs have increased because officials tend to adopt a more protective approach to the benefit of the financial market and consumers. Compliance is a continuous process.

One of the reasons for the increase in cost is the outsourcing of compliance functions and activities. Many businesses do not have adequate staff or suitably qualified professionals in their compliance departments. Therefore, they rely on external expertise, which creates additional costs.

AML compliance is vital not only in preventing money laundering and terrorist financing but also in combating fraud

What If Non-Compliance?

The cost of non-compliance can be understood through penalties imposed by regulatory agencies. US banks alone have been fined $ 243 billion since 2008. 

Firms spend a total of about $ 15 million on the consequences of non-compliance. This is 2.71 times higher than firms pay to stay in compliance by setting up compliance programs. The difference may be high, but it is not surprising. Ultimately, the aim is for companies to comply with their compliance processes. Also, the money these penalized companies lose is not the only thing they pay. The actual cost of non-compliance is your organization's loss of reputation and trust.

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How to Deal With the Cost of Compliance?

Compliance seems to be critical for companies for a while longer. What is certain is that we are in an era of change that is more burdensome for compliance professionals. With the effect of the COVID-19 epidemic, digitization has brought many risks for companies. Therefore, the need for more regulation in the markets arises, and the demand for security increases.

The most effective thing companies can do to reduce compliance costs is an investment in software that will automate part of the process. This way, compliance professionals will have time to analyze data and specific situations and avoid wasting time on repetitive checks and routine tasks.

In the long run, companies must invest in AML solutions to reduce their costs. Name Scanners and Transaction Monitoring are at the top of these solutions. With software that will help companies get to know their customers and monitor their transactions, they successfully fulfill their compliance processes as they meet AML requirements. Compliance personnel, on the other hand, do not waste time with routine work.

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