Recent geopolitical events and an increasingly fast pace of regulatory change are placing additional demands on already-stretched compliance teams in the financial services sector. However, investments in automation and AI are helping to streamline processes.
According to new research conducted by Dun & Bradstreet, 75% of compliance decision makers in Europe’s financial services sector agree that regulatory demands on their compliance team have significantly increased over the past year. This is 8% higher than the average cross-sector score of 67%.
In fact, the financial services sector feels demands on compliance teams have increased 35% on the previous year vs 30% for the wider group.
29% stated that staying up to date with regulatory changes was in their top 5 compliance risks. We asked which regulations were contributing to the biggest increase in time spent – from AML and Sanctions to Basel III and ESG, and teams responded as follows:
| Regulation | All Sectors |
Financial Services Sector |
Anti-Money Laundering & Bank Secrecy (e.g. EU AML Directives, FinCEN Final Rule) |
55.59% |
69.95% |
Sanctions and Export Controls (e.g. OFAC 50% Rule, UN, EU, and UK Sanctions) |
57.02% |
66.84% |
Data Governance & Financial Regulations (e.g. FATCA/CRS, Solvency II, Basel III) |
57.98% |
65.80% |
Anti-Corruption Laws & Regulations (e.g. FCPA, UKBA, CFPOA, OECD / UN Conventions) |
56.72% |
63.73% |
| Supplier Management (e.g. FAR Regulations, GDPR, CCPA/CPRA) | 55.83% |
60.62% |
Environmental, Social, Governance Regulations (e.g. German Supply Chain Act, EU Corporate Sustainability Due Diligence Directive, UK Modern Slavery Act, ROHS Directive, WEEE Directive, EU CSR Directive ) |
61% |
59.59% |
On almost every category of regulation we asked about, the financial services sector has seen a larger increase in time spent vs the overall cross-sector sample. Critically, with 14% more financial services compliance teams spending time on Anti-Money Laundering regulation.
The only category financial services compliance teams felt had seen a slightly lower increase than the overall group was in in ESG regulations, and it appears they are giving this less priority. 67% find the workload associated with KYC compliance reduces their team's ability to assess ESG and environmental performance of their third parties, vs the average cross-sector score of 60%.
Missing out on business
With 65% of financial services organisations executing much of their regulatory workload manually, it is leading them to enter ‘firefighting’ mode. 68% told us that they are forced to be reactive rather than conduct proactive risk management.
Whilst 70% of those surveyed are leveraging data to maintain awareness of compliance risk, just over 64% are citing they have had to reject potential customers due to a lack of risk visibility. The main proponent of this is an overload of false-positive matches.
Ultimately a lack of data, manual processes and increased pressure is leading the banking and payments sector to miss out on business.
With innovation and new technology comes opportunity….
To combat these issues, 68% of the financial services respondents would like to invest more in compliance processes in the next 12 months, and 65% plan to increase compliance team headcount. However, for 71% this will have to be done with flat budgets.
One way to reduce cost and effort is to automate workloads and move away from periodic reviews to always-on compliance and perpetual KYC models. In the financial services sector, 70% agree that their team is prepared for perpetual KYC, however, 65.28% feel they don’t have the appropriate solutions in place yet to fully switch.
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In recent analysis we conducted using traditional KYC methods vs perpetual KYC, the latter led to an astounding 90% reduction in time spent on KYC, and 85% reduction in cost. This demonstrates the significant saving that can be made through modernising compliance processes via automation. |
In the interim, financial services companies are starting to make the move to automation software to streamline existing traditional due diligence processes (68.39%), allowing them to spend more time on complex, ambiguous cases (69.95%). This includes automated notifications to proactively identify issues (66.32%) and intelligent screening processes (70.98%).
When it comes to innovation, 68% of organisations in the financial services sector are starting to invest in AI solutions to streamline compliance processes and enhance risk assessment - an increase of almost 6% over the average cross-sector score. In the long term, 66% feel AI will help banking and payments companies by enhancing compliance efforts, creating a more robust and adaptive compliance function (66.32%)
…but it’s not without risk and concern.
Despite seeing clear advantages to AI, 69% of our financial services respondents are hesitant to fully embrace it within their compliance processes, as they are still sceptical of ethical and regulatory implications. This is 7% higher than the overall cross-sector sample.
Taking a deeper dive into these concerns around AI, 31% of respondents noted worries about AI-generated fraudulent activities as one of their biggest compliance risks, along with 45% citing cyber security (34.72%). Both are related to regulations such as DORA (Digital Operational Resilience Act) which put onus on the financial services sector to ensure issues with technology don’t impact resilience.
In summary, the financial services sector is feeling the pressure of increased regulation. Despite flat budgets, banking and payments organisations are cautiously taking steps to combat this through increased headcount, new technologies like automation and AI, and new processes such as perpetual KYC.
Survey Methodology
Censuswide, the survey consultants, conducted an online survey during April 2024 on behalf of Dun & Bradstreet surveying 1,354 of compliance decision makers across 9 countries. Countries included were: UK, Sweden, Norway, Denmark, Finland, Austria, Germany, Switzerland, and Poland. This article focuses on the 193 decision makers in the Finance sector.
To find out more about our research into how to reduce compliance costs and workload through automation and perpetual KYC, check out our resources below:
Perpetual KYC Guide: Automating Third-Party Compliance
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