Over the next three years, operational costs of KYC processes for banks are expected to double because of the Fourth European Anti-Money Laundering Directive (AMLD4) and the Fifth European Anti-Money Laundering Directive (AMLD5). These amendments seek to protect credit and financial institutions against risks of money laundering or terrorist financing.
A new report from Consult Hyperion illustrates that a majority of UK banks are losing £5 million annually because of “manual and inefficient” Know Your Customer (KYC) systems. These costs are expected to rise to £10 million in three years after the introduction of AMLD5.
Once AMLD4 and AMLD5 take full effect, the cost of KYC checks is expected to exponentially increase as a result of higher frequency and more transaction types that need to be monitored. KYC’s reliance on manual checks, document archival, time spent by staff performing checks, specialist training, and the need to recruit compliance officers to ensure processes are being implemented correctly result in high costs for compliance.
Not only are banks responsible for these additional costs, but they are also at major risk of large punitive fines if regulations are not properly met, especially for serious breaches which, as per the AMLD5, can reach up to 10% of the annual turnover.
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