Is the cost of playing by the rules outpacing innovation?

Financial crime risks are escalating, and regulators are tightening their grip on compliance. In response, businesses are increasing their spending on Know Your Customer (KYC) Enhanced Due Diligence (EDD) processes. A recent survey from LSEG Risk Intelligence found that 87% of firms expect their KYC EDD budgets to rise over the next 12 months, with an average projected increase of 5.2%.

For financial teams, this trend presents a dilemma: how to manage ballooning compliance costs without exposing the business to regulatory penalties or reputational risks. Many organizations are looking to artificial intelligence (AI) as a potential solution, but is AI truly the silver bullet for compliance efficiency—or just another risk factor that needs careful oversight?

The Growing Cost of Compliance

The numbers paint a stark picture. The average company now spends $632,026 annually on KYC EDD, a figure that rises to over $900,000 for businesses with revenue exceeding $1 billion. Compounding the issue, 90% of compliance teams report an increase in EDD requests over the past three years, putting additional strain on resources.

At the same time, global regulatory bodies are introducing more stringent requirements around financial crime prevention, customer data protection, and risk monitoring. Key areas of concern for compliance teams include:

• Sanctions & Watchlists: 49% of firms cite increased global sanctions as a major challenge.
• Data Privacy & Protection: 48% are grappling with tightening laws around customer data security.
• Crypto & Digital Transactions: 43% see the expansion of cryptocurrency as a growing compliance risk.

These evolving risks mean that businesses can no longer view compliance as a static function—it must be a dynamic, scalable process that balances regulatory obligations with cost efficiency.

AI in Compliance: Cost Saver or Risk Amplifier?

Given the rising burden, AI is being positioned as a solution to streamline compliance efforts. AI-powered tools promise to reduce manual workloads, accelerate due diligence checks, and identify hidden risks faster than traditional methods. However, the survey reveals a divided perspective on AI’s role in compliance:

• 58% of respondents believe KYC EDD should remain mostly or fully human-driven.
• 42% see potential for AI-driven automation to take over most compliance functions.

The reality? AI alone is not a substitute for human expertise. While AI can optimize processes, CFOs must ensure compliance functions maintain the necessary human oversight to mitigate risks. AI-driven models, if not carefully monitored, can produce false positives, overlook nuanced risks, or fail to meet evolving regulatory expectations.

Nevertheless, when deployed responsibly, AI can provide significant benefits in the EDD space, including:

• Faster compliance reporting – 41% of firms cite AI’s ability to generate due diligence reports more quickly.
• Continuous risk monitoring – 37% highlight AI’s capacity to track regulatory changes in real-time.
• Enhanced risk detection – 36% believe AI can uncover hidden patterns of illicit activity.
• Cost savings – 35% expect AI to reduce the financial burden of compliance processes.

The takeaway? AI is a powerful tool for augmenting compliance, but it must be implemented carefully to avoid new vulnerabilities.

The CFO’s Role in Future-Proofing Compliance

With compliance budgets rising and regulatory expectations growing more complex, CFOs must take a strategic approach to balancing risk management with financial efficiency. Over the next three years, KYC EDD programs will be shaped by two major trends:

• A focus on beneficial ownership transparency – 52% of firms anticipate increased scrutiny around corporate structures and ownership disclosure.
• Greater reliance on technology and analytics – 50% expect to leverage AI, automation, and data analytics to handle rising compliance workloads.

For CFOs, this means aligning financial planning with compliance priorities by:

• Investing in Responsible AI – Prioritizing AI solutions that integrate regulatory frameworks and human oversight to ensure accuracy and compliance.
• Driving Cost-Efficient Compliance – Exploring third-party compliance solutions or centralized compliance platforms to optimize spending.
• Collaborating with Compliance Teams – Ensuring finance and risk teams align on compliance strategy, rather than treating compliance as a siloed function.
• Preparing for Regulatory Evolution – Staying ahead of AI governance, AML laws, and data protection regulations that could impact compliance investments.

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