CTST01-6 - Compliance Techniques and Strategies Assignment

Assignment Task

The rising costs of the FCC

The True Cost of Compliance research shows that FCC costs have risen by 19% since 2020. Total costs for UK financial services now stand at £34.2bn per annum, or around £194m per bank, and the expectations are that costs will rise by a further 8% over the next three years.

Regulation, according to the 300 financial services firms that contributed to the research, is the number one external factor driving FCC expenditure. However, since Oxford Economics’ first cost of compliance study in 2020, there have been few significant updates to Anti-Money Laundering (AML) regulations and certainly none that would justify the double-digit growth rate in costs that we’ve seen. It is more likely that increases in costs are being driven by a combination of a rise in criminal activity and a growing prioritisation amongst banks to address it.

Over 80% of respondents from UK financial services firms perceive an evolving criminal threat as the second highest-ranking external factor influencing FCC costs.

Their concerns are validated by the latest Fraudscape report from Cifas, published in April 2023. This reveals that last year saw 409 000 cases of fraudulent conduct logged to the National Fraud Database, the highest volume on record. Levels of fraud and financial crime could escalate in the coming years. Rising living costs are squeezing household budgets, potentially leaving people more vulnerable to criminal attack. Those in financial difficulty are far more susceptible to scams, making too-good-to-be-true offers seem plausible, while money worries may turn otherwise law-abiding citizens into fraudsters themselves.

Natwest Bank’s recent ‘Honest Job’ advertising campaign attempted to dissuade young people from becoming money mules, with their research showing growing numbers being targeted by criminals who are keen to exploit their financial hardship. Countering this growing and evolving criminal threat could make an 8% rise in FCC costs (predicted in the next three years) look optimistic.

Questions

1. Conduct independent research and explain in detail what the ‘return on the investment’ could entail in the automation and digitalisation of the compliance process.

2. According to the case study, what is the driver behind the increasing costs of compliance? Substantiate your answer with reference to the case study.

3. Identify four types of risk present in the case study above and provide a control to mitigate each risk.

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