Cutting the costs of compliance how technology can reduce costs and improve efficiency

Introduction

For regulated businesses in the UK, remaining compliant is a huge responsibility that requires significant investment. While having the processes in place to fight money laundering is absolutely vital – to both preventing the crime and protecting the business - it is increased regulations, rather than the criminal threats themselves, that are driving up costs.

That is because interpreting complex legislation – and keeping up with the constant changes to that legislation- is time-consuming and costly, and far too often, fear of non-compliance leads to an over-cautious approach. This, in turn,  leads to the creation of larger compliance teams running higher volumes of checks. And while in theory, a larger team running more and more checks should lead to a more robust process, an over reliance on manual procedures which are open to human error, actually puts the business at higher risk of non-compliance.

Digital compliance services not only offer a more reliable solution for regulated firms but can actually reduce costs - and in some cases, even create commercial opportunities for the business.

In this whitepaper we look at how data and technology can help businesses across the UK create more efficient and cost-effective compliance processes.

The cost and complexity of compliance

It is estimated that UK firms are spending around £30bn a year on AML processes, which is almost as much as the National Crime Agency estimates the total annual cost of the crime these processes are fighting - £37bn.  

There is also data to suggest that AML policy intervention is in reality, having very little impact on criminal finances. Therefore, it is highly likely that firms across the UK are spending £millions on their AML processes to in effect ‘remain compliant’ rather than actually fight financial crime, and that it is the increasing volume of AML regulations- rather than financial crime itself – that is the biggest driver of AML cost.

Firms feel huge pressure to ensure they are keeping themselves up to date with the latest rules, but struggle to find the time, resources and money to fund the changes needed to stay compliant. 

SmartSearch’s report also reveals that, despite the fact that most compliance decision makers say they are running verification and screening checks on all new customers, and that nine in ten recheck existing clients against sanctions and PEP lists monthly or more often, 70% are still worried about committing an AML breach.
 
And the consequences for AML failures are high; some of the most substantial AML fines handed out in the UK have run into hundreds of millions, for things like failing to check customers, not running due diligence on Politically Exposed Persons (PEPs) or failing to determine the origins of customer funds.  

Given the fear of huge fines, many regulated firms are becoming so focussed on complying with the rules, and managing all the various systems they have in place to do that, that they lose sight of what the rules are there for – to fight financial crime.

And the more a business grows, the bigger the AML burden becomes. They have more customers – often across different jurisdictions – increasing the complexity of checks both in terms of volume, and nature, with different requirements in different countries.

Add to this the increase in global sanctions as a result of the war in Ukraine and instability in the Middle East – and businesses are not only facing more compliance challenges than ever but are working in a world where the regulatory burden could change at any moment.

Not only does this make it hugely expensive for them to meet their requirements, but almost impossible to ensure they fully compliant, especially if they are relying on legacy systems or processes that include a reliance on manual procedures.

Over reliance on ‘people’ 

According to a recent report, people-related components e.g employment and training, account for the vast majority of AML costs, with firms surveyed reporting an average of 38 people working on compliance which accounted for 75% of the budget. Conversely, technology accounts for only 25% of compliance costs amongst regulated firms in the UK.

This overreliance on ‘people power’ over technology is problematic in more ways than one. 
Firstly, it is far more expensive to have an AML process that relies more on manual processes than technology driven solutions – even when you consider the initial investment and ongoing costs, a digital system is more cost effective than employing a team.

Secondly, as AML requirements continue to increase, firms that rely on people to run their processes will either need to invest in more and more people - at huge cost all at a time when budgets are being cut – or risk noncompliance, which, as we covered earlier, could be a multi-million pound mistake.

And thirdly, the more a compliance team relies on manual processes, the more risk there is of human error.

Transitioning to tech-driven processes

Digital AML processes are quicker, more accurate, more efficient, and therefore, more cost-effective than manual compliance systems. 

A digital platform is able to process and analyse vast amounts of data - cross checking information with multiple sources, in real-time - and run full, comprehensive checks in a matter of seconds. 

Digital compliance systems are also able to automatically store the results of all checks so that they are immediately accessible, and monitor the results, screening all checks daily for any changes. This screening is done against realtime lists, so any updates will be included in the monitoring process to ensure databases are up to date and compliant at all times.

SmartSearch said: “Transitioning from a manual compliance process to a digital one offers a huge number of advantages to regulated firms. Firstly, digitisation streamlines processes, reducing the time and resources needed for compliance tasks. Automated systems can swiftly analyse vast amounts of data, ensuring thoroughness and accuracy that manual checks may overlook. This accuracy is crucial in meeting regulatory requirements and avoiding costly penalties for non-compliance. Furthermore, digital systems often offer cost-effective solutions, as they eliminate the need for extensive ‘manual’ work and its associated overheads. 
“Efficiency is also significantly enhanced through automation as employee time is freed up, allowing them to focus on strategic tasks rather than mundane, repetitive checks. This is particularly valuable in the face of budget cuts as it enables firms to maximise their resources while maintaining compliance standards.”

How SmartSearch can help?

SmartSearch’s latest innovation - the enhanced platform – includes technological developments that not only make AML easier and more efficient but can actually cut costs for businesses across their wider onboarding and customer processing operations. 

Driven by the latest technology, regulatory change and customer feedback it includes a seamless new interface and several key enhancements to offer the ‘gold standard’ in compliance, including: 

•    Multi bureau data – SmartSearch was previously using data from both Experian and Equifax to inform its initial identification and verification checks, but now a third data partner - TransUnion - has been added to the offer the highest match and pass rate on the market (97%)

•    Perpetual KYC (pKYC) – the new platform not only runs initial identification, verification and screening checks, but also automatically re-runs client searches, delivering instant access to the latest search outcomes and audit trails.

• User Management - by having all compliance checks on one platform – and integrating this with clients’ existing systems - users can manage the entire customer journey from one place.

• Configurability and automation - SmartSearch’s solutions can now be fully tailored to each businesses’ unique needs, including a co-branded/white labelled interface, enabling them to set up bespoke processes and fully automated workflows that are able to assign, notify and create applications based on rules. 

• API functionality – all SmartSearch services are now available through RESTful APIs, meaning the solutions can be fully integrated with a client’s existing system within 24 hours.

• Source of Funds checks – this new functionality uses open banking to access an individual’s or company’s bank account to ascertain vital financial information, with minimal input required from the client. 

The SmartSearch platform not only ensures regulated businesses are meeting their AML and compliance obligations, but thanks to the next generation upgrade, SmartSearch is able to offer a level of operational efficiency that not only saves users time and money, but actually creates business opportunities. 

The pKYC functionality helps clients know their customers better, and therefore creates opportunities for revenue generation, while the advanced compliance capabilities not only offer the highest level of AML protection, but also achieves large-scale loss avoidance, thanks to the highest match and pass rate on the market, and highly advanced verification tools that are able to identify where further investigation is needed while offering a seamless customer journey for genuine clients.

On average, it takes between two days and a week to run a single ID check for a new customer manually; SmartSearch can complete an electronic check on individuals in just two seconds and a business check in around two minutes, with just a few basic details.
Not only is that significantly quicker, but it is also much more accurate, as it is pulling data from multiple real-time sources. 

The latest platform update is also the most configurable solution yet, meaning that, as new sectors become regulated, SmartSearch is able to cater to their unique regulatory needs. 
For example, SmartSearch has worked with the accountancy, financial services, property and legal sectors for many years now, offering the latest technology to enable these core sectors – that always have been and continue to remain key targets for money launderers – to protect their businesses, prevent financial crime and remain compliant as regulations and business needs change. 

And now, despite being relatively newly regulated sectors, SmartSearch is also now working with a number of cryptocurrency businesses, art dealers and gambling and gaming firms, providing them with bespoke, risk-based solutions for their businesses’ compliance needs, all enabled by the flexibility, scalability and configurability offered by the new, enhanced platform. 

The Government recently launched a new whitepaper with proposals for gambling firms to be legally required to run much more stringent affordability checks; SmartSearch’s new solution – which includes  SOF checks – means clients will be in a position to meet any new rules around affordability and proof of income quickly and efficiently. 

Also, thanks to the advanced integration capabilities the platform now has, it can be integrated with clients existing systems – including back-office systems, something most competitors are not able to do - making the solution fully flexible.   The entire integration can be completed within 24 hours, no matter the size or scale of the client business. This means clients can now achieve simple, scalable, and flexible AML solutions that fit seamlessly into their current processes via a co-branded/white labelled interface, bespoke workflows and custom risk profile. SmartSearch can also run retrospective checks on a client’s entire existing customer databases, bringing businesses from non-compliant to complaint quickly and efficiently.