Following the 2008 global financial crisis, financial institutions made major investments in compliance and risk coverages that enhanced their ability to protect data. These changes were effective, but they didn’t consider the costs involved in getting there and whether or not there was potential to be more efficient across the regulatory function.

From 2015 to 2021, global costs of compliance leapt by 64% to $227 billion.¹ Banks, insurers, fintechs and other institutions are now spending between 1.3% and 2.5% of annual revenue on fighting financial crime.² Organizations are also increasingly focused on using technology without a clearly defined strategy behind the transformation. While at least some of that increase in spending and technology use was certainly necessary in response to rising pressure from regulators, it’s now clear that focusing on these mechanisms alone isn’t the best way forward.

Instead, institutions need to review and renew their processes from the ground up, looking at them through a productivity lens. Doing so will allow institutions to prioritize the interventions and actions that will help them move toward process excellence.

We see four ways organizations can create value opportunities in their financial crime prevention operations to achieve process excellence:

1. Revisit the operating model. Improving productivity starts with mapping out what work gets performed, where and how. This requires looking at four macro processes: the set of regulatory standards that define the process, the data sources feeding into it, the outputs and the core workflow that manages the process. Each of these needs to be analyzed and optimized.
   
2. Build a continuous improvement capability. Our research indicates that fewer than half of all performance improvement initiatives achieve their goals. To make changes last, organizations need to take a dynamic approach. That means continuously gathering data, looking at performance indicators and outcomes of financial crime compliance processes and using that knowledge as the basis for adjusting resources and enhancement investments.
   
3. Define and measure. Define each process and micro-process, and set up ways to measure them. Focus on dimensions including risk mitigation, effort, time, friction points, volume, added value, client experience and quality. Only then will financial institutions be able to compare their performance with standards and best practices, and set priorities for where improvement is most urgently needed.
   
4. Embrace analytics. Setting out to simply replace incumbent technologies without first attempting to measure their performance, and improve it if possible, can lead to wasted effort. Some of the leading financial institutions have taken a more centralized approach, creating hubs for data science and adopting analytical tools that help them address performance challenges. This allows them to zero in on what impact productivity levers are having, which lets them increase risk coverage and decrease inefficiencies.

All these steps evolve into a data-analytics-enabled, quantitative assessment of those areas that may yield the greatest benefits, linking actions to impact. The final step is to design change programs that focus on the levers of productivity, boosting overall effectiveness and efficiency.

Financial crime controls are increasingly interconnected and achieve peak performance only when they’re coordinated, managed and measured. By using ongoing effectiveness monitoring, improving process flow, implementing digital tools and employing technology to prevent financial crime, you can increase your organization’s productivity in this area.

^{_{1 “Global True Cost of Compliance 2020,” LexisNexis source: LexisNexis Cost of Compliance report and PwC insights.
2 As above.}}