A new report claims the cost of anti-money laundering compliance for the financial services sector has reached a staggering £28.7bn – per year. And, despite the global pandemic enabling organised criminal gangs to increase their nefarious activities, it is thought the main driver behind the rising cost is in fact regulation.  

Now, it has long been a fact that the UK stands alone in being the most heavily regulated country in the world, so in some ways it should come as little surprise that the cost of that regulation is also world leading.  

But if the figures that have been published are accurate, then £28.7bn is a truly astonishing amount of money and should really jolt the Financial Conduct Authority (FCA) into action on the issue.  

It raises a number of questions about why the costs are so high and what the regulator is doing to help the sector address it.  

For instance, should the FCA take on more responsibility to promote cost-effective ways of achieving compliance, through the increased use of electronic verification? 

The fact is, with the technology that is available to the financial services industry today, there is simply no reason to be facing such swingeing costs for ensuring anti-money laundering compliance. 

However, both the FCA and the Bank of England the two most powerful and influential regulatory bodies in the country, said back in April that it is not their place to promote the use of AML technology to financial services in the UK.  

This statement was made despite a separate report by the City of London Corporation finding that compliance for Britain’s top five banks could be cut by at least £523 million combined, through increased use of automated systems.  

They are right of course that’s it’s not their role to actively market the technological solutions available. But surely it is their role to promote the benefits of such solutions more generically, in order to raise awareness among businesses struggling to meet the cost of the regulations.  

But it is not just a regulatory obligation that should be driving change for banks and the financial services sector to switch to automated checks, there is a commercial imperative as well. 

What we are seeing is more new starter banks and lenders coming into the market and opting for an electronic verification system to handle all of their compliance.  

This will give them a competitive edge and they will continue to have operational advantages until traditional players catch up, and these needless costs will just continue to rise. 

There is a perceived challenge among the more well-established financial institutions around making the switch to digital, because I suspect a large proportion of the cost of compliance is hours spent by staff manually verifying customers. 

As a bank with legacy systems in place it can feel like a tall order to make the switch, while ensuring the safety and security of their customer data. 

But those hours spent using staff for manual checks can be reduced to just a few seconds with a digital solution and customer data can also be retrospectively

checked and verified once it’s in the system. Systems can be up and running within 24 hours with no business disruption.  

The cost of regulation in terms of time spent manually verifying documents, where there are increasingly more sophisticated forgeries, threatens to undermine business performance. It really is a 20th century approach to dealing with a 21st century problem.  

So, if the financial services community wants to address the phenomenal cost of compliance, and make sure they remain operationally competitive, firms must embrace the latest technology for the solution. 

John Dobson is chief executive of SmartSearch