A new study of financial crime compliance costs found spending by American and Canadian financial institutions is up sharply in 2020, driven in part by the coronavirus pandemic.

The True Cost of Financial Crime Compliance Study, released Wednesday and compiled by LexisNexis Risk Solutions, projected the cost of financial crime compliance at $42 billion across U.S. and Canadian financial firms this year. The costs break down to $35.2 billion for U.S. firms and $6.8 billion for Canadian firms.

Total costs are up 33 percent over 2019, the report said.

Survey respondents included 150 financial crime decision makers (120 American, 30 Canadian) polled via telephone during August. The individuals worked in financial crime compliance at banks, insurance companies, investment firms, and asset management firms.

The total annual cost of compliance across firms was calculated using survey data on financial crime costs as a percent of total assets and secondary data that provides the total assets for all financial institutions in the United States and Canada. The spend amount was generated by multiplying the average percent allocated to financial crime costs by the reported total asset amount, according to the survey’s methodology.

What American and Canadian financial institutions are paying to combat financial crime still pales in comparison to their counterparts in Europe, who spent $137 billion on financial crime compliance worldwide in 2019, according to another LexisNexis study.

The coronavirus pandemic has increased the complexity of financial crime compliance in a number of ways, said Daniel Wager, vice president of global financial crime compliance strategy at LexisNexis Risk Solutions.

Since face-to-face interaction has dissolved, new customers have to provide their documentation electronically, Wager said. In the past, this task was often accomplished by a branch employee in person. Financial institutions have now had to make sure these electronically filed documents are legitimate and legible.

“The mechanics of it have become quite difficult,” Wager said.

The volume of new accounts has been buffeting some financial institutions, Wager said. New customers who may never have had a bank account before are applying, driven by a desire to facilitate government unemployment and stimulus payments, he said.

Ninety-one percent of survey respondents said the pandemic was having a moderately or significantly negative effect on customer risk profiling; 78 percent said the same for know your customer (KYC) account onboarding.

Financial institutions are not processing as many of the large transfers they saw pre-pandemic but are now handling millions of new, small accounts, Wager said.

“Instead of billion-dollar venture capital transfers, they’re dealing with one million new account holders who want to transfer $150 each,” he said.

The next wave of financial crime compliance costs, Wager predicted, will be in investigating fraud, anti-money laundering, and sanctions violations, as these new account holders “try to do weird things,” he said.

The report found 87 percent of U.S. financial institutions surveyed, and 82 percent of Canadian firms, expect alert volumes to increase in 2020. It is taking American and Canadian financial crime analysts about five hours to clear KYC due diligence alerts, up from three hours in 2019.

Financial institutions have dealt with the increased costs in several ways. They have increased pay, benefits, and bonuses to the compliance team members they have in place. This translated into overtime for hourly employees and salary bumps for executives in financial crime compliance. But the survey found the increased spending did not translate into more hiring; instead, existing compliance teams have been largely tasked with handling the increased workload without extra help.

The survey also found firms that invested more heavily in technology experienced lower cost increases and fewer negative impacts due to the pandemic than those that did not.

“Year-over-year compliance cost increases are lower among those allocating more spend to technology, and these financial institutions (FIs) also realize greater efficiencies,” according to a press release that accompanied the survey. “Larger FIs (over $10 billion in assets) in the U.S. and Canada who allocated at least 50% of their compliance costs to technology will spend $5 million less on average in annual costs in 2020 than FIs who allocated 35% or less of those costs to technology.”