The importance of compliance in a complex regulatory landscape

The importance of meeting global compliance standards in today’s digital world is something that organisations should never underestimate.

Johannesburg, 06 Jul 2023
Jonny Bell, director of financial crime compliance and payments, LexisNexis Risk Solutions.
Jonny Bell, director of financial crime compliance and payments, LexisNexis Risk Solutions.

Research from LexisNexis Risk Solutions shows the digital attack rate increased by 20% in 2022, compared to the previous year. Cyber crime continues to be a major concern for organisations as they seek to meet international compliance standards. 

Businesses monitor recommendations and guidelines from the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, as a priority when they trade in member countries, notes Jonny Bell, director of financial crime compliance and payments, LexisNexis Risk Solutions.

“Focusing on financial crime compliance is vital, as a failure to identify such activities has the potential to severely impact an organisation,” said Bell. “For example, a company that fails to detect bribery or fraud can face huge fines, both locally and internationally. There is also the possibility of legal action, including custodial sentences, while any association with any kind of criminal activity creates a significant reputational risk.”

Businesses of varying sizes also have different priorities when it comes to compliance. Generally, the challenge for the world’s largest businesses is around the complexity of their environment, particularly when operating cross-border.

“It is a very complicated regulatory environment,” Bell added. “Remember that these businesses must also adhere to the compliance laws – such as the EU’s General Data Protection Regulation (GDPR) – that exist in other nations in which they operate. For mid-market enterprises, their primary focus is less on the complexity and more on the efficiency of their compliance approach and cost-effectiveness.”

This cost is no small matter, said Bell, pointing out the global cost of compliance is currently rising in double-digit growth, totalling approximately $274 billion.

“Geopolitics is the single biggest reason for the increase, with tensions between superpowers, local issues such as Myanmar’s issues and Russia’s invasion of Ukraine, it is unsurprising that the broader global market is under increasing compliance pressures,” said Bell. “The impact of sanctions on specific nations and the double-digit growth of inflation are also contributing to rising costs.

“South Africa also faces the consequences of its FATF grey-listing, which is bound to impact the overall cost of conducting effective compliance in the longer term.”

Bell suggests that compliance and its related costs have hit Africa hard in the past decade because of the speed at which the continental market has adopted mobile banking and payments. The banks that work with these previously unbanked clients have a regulatory obligation to screen them properly.

“Certain things, such as geopolitics and inflation, are out of your hands in terms of reducing the cost of compliance,” said Bell. “However, effective crime compliance functions can help organisations to alleviate cost pressures.”

Seeking out the most efficient software and assessing whether it is cheaper to buy or build is one way of controlling costs. Organisations can also consider the costs related to procuring data from external parties or employing an operational team to build their own databases.

“Another critical way to save money is to identify which parts of the process can be automated to reduce costs,” continued Bell. “One thing that’s certain is that continuing to focus on compliance is critical at a time when cyber criminals, fraudsters and other bad actors are becoming more active. Today’s regulatory landscape is likely to become more complex as cyber crime increases and the FATF responds with new financial crime regulations.”