Global financial crime compliance costs for financial institutions total more than $206 Billion according to the 2023 LexisNexis Risk Solutions Study. These hard costs are compounded by the confluence of complexities facing financial crime compliance organizations, including keeping up with industry regulations, high attrition/low recruitment rates, increased sanctions, and doing more with less, all while trying to achieve better and faster customer experience.
According to Thomson Reuters’ 2023 Cost of Compliance Report, cost pressure and balancing competitive and compliance pressures were reported as key challenges. Yet, 45% of respondents did not monitor their cost of compliance with regulations across their organizations.
Today, a whopping 70% of banks and non-banking financial institutions face staffing challenges in their compliance operations. While it’s no secret that AI is the future of work, many executives may be reluctant to invest in new technology if they can’t understand its value. What if your organization could achieve 3-5x ROI and break even in the first six months of deploying a new tool that would help ensure compliance, alleviate staffing challenges, and improve customer experience? It’s possible.
To illustrate this, let’s look at a current customer who deployed Evelyn, our Adverse Media and Sanctions Screening Alert Review AI Digital Worker. A top community bank in the U.S. recently performed a look back at their entire customer base for adverse media monitoring, needing to review 500,000 adverse media alerts, with multiple articles, and nearly 100,000 PEP alerts. They had no way to manage 600,000 alerts or workers to read and disposition all that news. Assuming it takes 5 minutes per alert, it would take 66 FTEs 90 days! Instead, they deployed Evelyn + 25 contractors, saving them roughly $1.2 million in labor costs.
Let’s dig deeper.
Employee recruitment, retention, and other staffing issues have become business as usual in financial crime compliance. According to recent WorkFusion/Celent research, only 26% of firms are happy with their current staffing levels. And, it takes most firms three to four months or even longer to fill both entry-level and experienced positions.
Employee retention is also a widespread challenge in compliance operations. Even firms that are not experiencing shortages often must expend considerable effort to maintain staffing levels. AI Digital Workers allow organizations to scale to solve this talent dilemma. With automation, you don’t have to continuously hire new employees or temporary workers.
Additionally, the burden of the extra work which is typically absorbed by the remaining employees after an employee quits creates burnout and may spur them to look for another job, creating an unvirtuous cycle of employee churn. On top of that, you have the added HR cost of recruiting and the time and capacity cost of existing employees and senior personnel who have to onboard and train the new employees.
Simply put, you can’t throw bodies at this problem. The survey showed that 77% seek to resolve staffing challenges through outsourcing and most of these focus on domestic outsourcing, which comes at a higher cost relative to offshoring.
Hiring more people, outsourcing, offshoring, or temporary workers are not going to fix these foundational talent challenges. A more holistic approach and solution is needed, one that allows financial institutions to manage risk more effectively, improve quality, and get out of the same recruit, onboard, train, and then leave cycle that has been 20 years in the making.
The ability “to hire” AI that works 24/7/365 is a game changer for financial crime programs. It resolves staffing challenges by improving quality, rapidly scaling and increasing team capacity, so that the team can focus on true investigative work and risk analysis. In other words, your program becomes both more effective and more efficient. It also saves costs in terms of recruitment, retention, and training.
What is the cost of quality of work in financial crime compliance? Beyond regulatory fines and reputational damage, the anti-money laundering and combatting the financing of terrorism (AML/CFT) frameworks exist to prevent bad actors from accessing financial systems for nefarious purposes. Inconsistent or flawed work creates inconsistent or flawed results, which can lead to dire circumstances.
Geopolitical issues and sanctions, changing consumer behavior and evolving technology, downward pressures on budgets, and interconnected financial networks increase complexities and risk for AML compliance teams. Bearing a lot of the heavy workloads are the L1 teams that are managing highly repetitive and routinized processes, that are inundated with false positives.
For example, sanctions surges strain any compliance program that lacks a highly elastic infrastructure or workforce. The combination of compliance and operational demands requires companies to do more (e.g. review more alerts, provide more descriptive narratives) with less (same or fewer number of employees to review alerts). This double whammy puts tremendous pressure on every BFS company and its staff. Beyond the overwhelming volume of alerts, consistency and quality are also problems. First is the consistency and quality of approach, which then leads to the consistency and quality of the work that is being done. This leads to errors, usually technical errors, but sometimes substantive errors and missed escalations, especially when dealing with the large number of false positives.
With AI Digital Workers, each Digital Worker is tied to machine learning models. As opposed to each worker doing their own thing, where you end up with inconsistencies, you have high-quality and consistent reviews with detailed reporting for audit trails and compliance reporting. Because AI doesn’t get bored with tedious work, it is less likely to miss the needle in the haystack of a true positive. And, with consistent quality, the team spends less time on the back end correcting any errors, which ultimately saves the organization dollars and cents.
How much is an AML officer’s time worth?
As noted earlier, 70% of banks and NBFIs face capacity challenges in their compliance operations—meaning that many departments that are “staffed adequately” face at least occasional capacity shortfalls. To counter these capacity shortfalls, 38% of firms fill capacity gaps by calling on more senior personnel to pitch in. Smaller organizations are more likely to call on their compliance officers to help—44% of organizations with assets under US $50 billion rely on senior personnel to close gaps.
A strong AML compliance program starts with a strong compliance officer who is fully knowledgeable of their organization and the risks of potential regulatory breaches. According to Thomson Reuters’ 2023 Cost of Compliance Report, “retaining skilled resources is seen as essential to deliver on a growing range of subjects with which the compliance function is involved. The recruitment of the appropriate talent comes at a cost, and the appeal of becoming a compliance officer has been reduced due to the potential for increased personal liability.”
As regulators increasingly look to personal accountability within an organization, the personal liability for senior management is something to be taken seriously. Under the United States Bank Secrecy Act (BSA) for financial institutions, “willful violations of the statute or its implementing regulations by an institution and any of its partners, directors, officers, or employees are punishable by a civil penalty of $25,000 (or the amount of the transaction at issue, up to $100,000) per day for each day the violation continues and at each office or location where it occurs or continues.” In the UK, under the UK Senior Managers and Certification Regime, individual fines can reach up to 40% of their income.
Quite simply, compliance officers, no matter the size of the organization, should not have to pitch in to manage L1 AML workloads when automation exists to help increase team capacity and improve compliance. This alleviates their workload and allows compliance officers to invest their valuable time on the higher value work they are being paid for.
While innovating to improve financial crime compliance operations is a big step for most banking and financial services organizations, many may be wary of taking that initial leap. Organizations may be concerned about the initial cost or time to value. However, the good news is that organizations don’t have to start big to realize big results. You can start small and get some quick wins with pre-built AI Digital Workers that come out of the box fully trained in L1 work like sanctions screening alert review, adverse media monitoring, transaction screening and transaction monitoring alert review.
If your team is thinking, “we don’t have a year or more to wait to see results,” the good news AI Digital Workers typically demonstrate 3-5X ROI breaking even in the first three to six months and deliver true value even faster.
Simply put, AI Digital Workers are good for the bottom line allowing organizations to prove AI success with minimal risk.
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