The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

The UK’s financial crime compliance bill continues to grow, despite the strong push towards digitalisation. This could be taken as a worrying sign that automation is not delivering on its promises. 

According to the latest True Cost of Compliance Report from LexisNexis® Risk Solutions, spend on screening activities has risen by a third (33%) since 2021. That puts the collective annual price tag for UK banks and fintechs to comply with regulation at a staggering £38.4billion – equivalent to around three quarters of the UK government’s spend on defence, or put another way, the gross domestic product of Estonia.

A closer look however, reveals a more nuanced picture. Firm-level financial crime compliance (FCC) cost increases were largely driven by investment in technology, growing at more than twice the rate of employee-related, or other costs. Technology-related roles, for the first time, make up over half (52.4%) of all FCC recruitment and training costs, up from a third (34.1%) since 2022, as firms build teams of technologists capable of operating the technology and interpreting the outputs.

This is clearly reflected in the levels of automation now seen across the customer due diligence (CDD) workflow. All CDD processes in 2024 are at least two-thirds automated, with the average level at 80% and the biggest jump seen in internal investigations. This is a far cry from just two years ago when the FCA sent a warning to firms about a systemic over-reliance on labour-intensive manual processes and spreadsheets. 

So, where are the promised efficiency gains? Well, despite over half (52%) of firms reporting an increase in customer numbers in 2023, leading to a big spike in onboarding activity, there was a 7% drop in KYC and IDV process costs as a share of overall FCC costs over the same period. This suggests that automation is delivering process efficiency gains at the most volume-intensive end of the CDD journey. Similar benefits were realised elsewhere in the journey too. 

Looking ahead, there’s little to suggest a loss of appetite for technology adoption in the near term. Firms are setting their sights on advanced analytics and AI, with 40% saying they’ve already implemented tools and a further 58% saying they plan to do so within three years. Further data improvements are also on the menu. 

So, while technology spend is likely to continue driving FCC costs for the foreseeable future, it should also go hand-in-hand with falling real-term costs, as Steve Elliot, Managing Director of LexisNexis® Risk Solutions reflects, “UK firms clearly see the longer-term value that technology like AI can bring, in helping to make screening far more effective and ultimately to drive more crime out of our financial system. There’s no reason to doubt that we could expect to start seeing a drop in overall compliance costs for a majority of firms by 2030.”

Discover far more detailed analysis and breakdown of costs across the compliance journey by downloading the report today. 

The True Cost of Financial Crime Compliance surveyed 254 regulated UK financial services firms in early 2024 and was carried out by consultancy, Oxford Economics.