The Evolution of Compliance: From Cost Centre to Value Generator

Over the last few decades, compliance has transformed from a regulatory necessity into an industry worth hundreds of billions of pounds. Whilst its role in risk mitigation and legal adherence is undisputed, compliance is frequently perceived by some politicians and business leaders as a burdensome overhead that hampers operational agility. As a result, compliance functions face the persistent risk of marginalisation, reduction, or reform. In response, senior compliance professionals must adopt a strategic approach to demonstrate the indispensable value that compliance adds to the businesses we serve.

Compliance as an Overhead

Compliance is often viewed as an overhead cost that organisations must bear to meet regulatory requirements, mitigate risks, and avoid legal penalties. Unlike revenue-generating activities, compliance does not directly contribute to profitability, making it a financial and operational burden, particularly for smaller firms with limited resources. The costs associated with compliance include hiring specialised personnel, investing in technology for monitoring and reporting, conducting regular audits, and training employees on regulatory standards. For example, under the General Data Protection Regulation (GDPR), companies handling EU citizens' data must invest in data protection officers, legal consultations, and system upgrades to ensure compliance, or face fines of up to €20 million or 4% of global annual turnover.

Similarly, financial institutions must comply with AML regulations such as the Bank Secrecy Act (BSA) in the US, requiring the implementation of costly transaction monitoring systems and Know Your Customer (KYC) checks. In 2020, Goldman Sachs paid $2.9 billion in penalties for violations related to the 1MDB scandal, underscoring the high cost of non-compliance. Additionally, Deutsche Bank has spent over $18 billion on compliance and litigation costs since 2008, demonstrating how regulatory obligations can significantly impact financial institutions.

Whilst compliance may seem like a costly obligation, failing to adhere to regulations can result in severe financial penalties, reputational damage, and even legal consequences, ultimately making the investment in compliance a necessary safeguard for long-term business sustainability.

Global Shift in Compliance Efforts

There has been a notable global shift in compliance efforts in recent years driven by a combination of geopolitical, economic, technological, and regulatory factors. Several key trends have contributed to changes in how governments and financial institutions approach compliance:

• Geopolitical Tensions & Sanctions Enforcement

  Increased geopolitical conflicts, such as the Russia-Ukraine war, have led to stricter sanctions regimes, particularly from the US, EU, and UK. However, enforcement has been inconsistent, with some jurisdictions deprioritising compliance to maintain economic ties with sanctioned nations. Some countries, such as Turkey and the UAE, have been accused of serving as financial hubs for Russia, prompting a shift in global compliance expectations.

  
  

• Economic Pressures & Deregulation

  Economic downturns and inflationary pressures have led some governments to relax compliance measures to attract investment and ease financial sector burdens. For example, under the Trump administration, the US reduced enforcement of the Foreign Corrupt Practices Act 1977 (FCPA) to encourage global competitiveness. Similarly, the UK has faced criticism for lax enforcement of financial crime laws, particularly in its approach to unexplained wealth orders (UWOs) and enforcement against Russian oligarchs.

  
  

• Regulatory Harmonisation & Divergence

  Whilst global organisations like the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision (BCBS) push for standardisation, compliance frameworks remain fragmented. The EU, for example, abandoned its independent AML watchlist, instead aligning with FATF’s grey list, delaying action against non-compliant jurisdictions. Meanwhile, some regions, like the US and Singapore, are tightening AML rules, creating a divide in global compliance strategies.

  
  

• Advancements in Financial Crime Tactics

  Criminals are leveraging decentralised finance (DeFi), cryptocurrency mixers, and digital assets to bypass traditional compliance frameworks. The rise of "pig butchering" scams and ransomware attacks has outpaced regulatory responses, particularly in jurisdictions with underdeveloped cybercrime enforcement. Some governments, such as China, have focused on protecting their own citizens from scams rather than dismantling global financial crime networks.

  
  

• Technology-Driven Compliance Evolution

  Many compliance functions are being automated through AI and machine learning, reducing reliance on manual processes. While this enhances efficiency, it also creates gaps in human oversight, leading some regulators to scrutinize AI-driven compliance efforts more closely. At the same time, firms in less regulated markets may delay investment in advanced compliance tools, widening the enforcement gap between developed and developing markets.

  
  

• Pushback Against Overregulation

  Some industries, particularly crypto and fintech, have argued that excessive regulatory requirements stifle innovation and investment. In response, some countries have weakened compliance frameworks to attract businesses. For example, El Salvador’s decision to adopt Bitcoin as legal tender has raised concerns about its ability to monitor financial crime risks, while Dubai has positioned itself as a crypto-friendly hub with relatively lenient AML measures.

Compliance as a Profitability Driver

Although compliance is often seen as a regulatory obligation, in reality, it is a key driver of profitability, risk management, and business growth. Banks, FinTech firms, and asset management companies that invest in strong compliance frameworks enhance customer trust, prevent financial crime, and unlock new market opportunities, while those that neglect compliance risk hefty fines, reputational damage, and regulatory sanctions.

A prime example is JPMorgan Chase, which leveraged compliance automation to streamline its KYC (Know Your Customer) and AML processes. By implementing advanced compliance technology, the bank reduced onboarding times, cut operational costs, and improved customer experience leading to increased revenue and market share. On the other hand, HSBC’s failure to enforce strong AML controls led to a $1.9 billion fine, severely impacting its profitability and forcing a long-term overhaul of its compliance operations. Similarly, in the FinTech and crypto space, compliance determines market access. Coinbase’s adherence to SEC and FATF regulations allowed it to secure licenses in multiple jurisdictions, expanding its global customer base and increasing investor confidence. Meanwhile, Binance’s regulatory struggles have led to market restrictions, legal challenges, and financial losses, illustrating how non-compliance can hinder growth and profitability.

Beyond avoiding fines, compliance also enhances operational efficiency and fraud prevention. Financial institutions that integrate AI-driven transaction monitoring systems can detect and prevent fraudulent activities in real-time, protecting their assets and customer funds. Fraud and money laundering losses can be devastating for profitability, as seen in cases like Wirecard’s collapse due to financial misconduct. By contrast, firms that proactively enforce AML and fraud prevention measures strengthen their financial stability and avoid regulatory crackdowns.

Another major benefit of compliance is access to capital and strategic expansion. Investors, regulators, and institutional clients favour financial institutions with strong governance and risk management practices. Banks and asset managers that demonstrate compliance with ESG (Environmental, Social, and Governance) standards attract institutional investors and impact funds, increasing their market value. Furthermore, regulatory compliance enables smooth cross-border operations, allowing banks and FinTechs to expand into new markets without restrictions.

Ultimately, compliance is not just a cost of doing business; it is a strategic advantage. Financial institutions that prioritise compliance gain regulatory trust, mitigate financial crime risks, and build a strong reputation that attracts customers and investors. By integrating compliance into their core business strategies, financial services firms can ensure long-term profitability, sustainable growth, and competitive resilience in an increasingly regulated industry.

Delivering Value & Operating Efficiently

To counter the perception of compliance as a mere cost centre, compliance professionals must proactively illustrate how their function drives value. By shifting to a risk-based, technology-driven, and business-aligned approach, financial institutions can reduce compliance costs, improve oversight, and create a competitive advantage.

• Adopt a Risk-Based Approach

One of the key ways compliance can operate efficiently is by adopting a risk-based approach. Instead of applying uniform controls across all customers and transactions, institutions should prioritise high-risk areas while streamlining low-risk processes. This ensures that resources are allocated effectively, reducing unnecessary operational burdens. For instance, banks implementing risk-based AML frameworks focus enhanced due diligence (EDD) only on high-risk clients, enabling faster and more cost-effective onboarding for low-risk customers.

• Leverage Technology & Automation 

Another critical factor is leveraging technology and automation to improve compliance efficiency. AI-driven transaction monitoring systems can reduce false positives, allowing compliance teams to focus on genuine threats rather than getting overwhelmed by unnecessary alerts. Automated KYC and CDD onboarding and regulatory reporting tools also help cut down manual processing time. For example, JPMorgan Chase has successfully implemented AI-powered trade surveillance, leading to faster fraud detection, reduced manual workload, and significant cost savings.

• Business Strategy Integration

To maximise its impact, compliance should be integrated into business strategy rather than operating in isolation. Compliance teams that collaborate closely with front-line staff—such as relationship managers and product teams—help ensure that regulatory requirements do not become business bottlenecks. Standard Chartered Bank, for example, successfully partnered with its product team to develop an AML-compliant cross-border payments solution, unlocking new revenue streams while maintaining strict regulatory adherence.

• Data-Driven Decision-Making

Using data-driven decision-making further enhances compliance efficiency. Predictive analytics and centralised compliance dashboards allow institutions to detect emerging financial crime risks before they become major issues. Data-sharing across departments enables a holistic risk assessment, improving regulatory reporting accuracy and reducing compliance investigation times. Nordea Bank centralised its compliance data and introduced AI-powered risk detection reduced its compliance review time by 40%, demonstrating the power of data in streamlining operations.

• Reduced Compliance Costs

Reducing compliance costs is another priority for financial institutions, and this can be achieved through efficiency gains rather than increased headcount. Automating repetitive compliance tasks such as SAR filings, customer screening, and transaction monitoring can free up human resources for more complex investigations. Additionally, standardising compliance processes across different jurisdictions eliminates redundancies, whilst shared services and outsourcing models can further cut operational costs. DBX Bank achieved a 30% reduction in operational costs and a 50% decrease in compliance-related errors as a result of upgrading its core banking systems, enhancing customer experience, and automating compliance and risk management processes.

• Proactive Compliance Culture

Proactive regulatory engagement ensures smoother compliance implementation and reduces the risk of unexpected penalties. Instead of waiting for audits or regulatory scrutiny, compliance teams should actively engage with regulators to shape industry best practices. Institutions that adopt a proactive compliance culture, provide regular training, and implement early alignment strategies are better positioned to navigate regulatory changes.

Conclusion

The evolving regulatory landscape presents both challenges and opportunities for financial institutions. Whilst compliance has traditionally been viewed as a cost burden, its role in fostering trust, mitigating risk, and unlocking market potential cannot be overstated.

The global shift in compliance efforts reflects broader geopolitical, economic, and technological changes, requiring financial institutions to remain adaptable and proactive. Firms must navigate the tension between increasing regulatory scrutiny in some regions and deregulatory trends in others, ensuring that compliance remains robust despite shifting expectations. By adopting a strategic, risk-based approach and leveraging technology, firms will continue to transform compliance from a reactive function into a competitive advantage. Those that proactively engage with regulators, invest in robust compliance infrastructure, and integrate compliance into their broader business strategies will not only mitigate financial crime risks but also position themselves for long-term success in an increasingly uncertain world.

What if compliance wasn’t just a cost but your greatest competitive edge?

As compliance professionals, we sit at the front line of trust, risk, and resilience. But to stay relevant, we must go beyond regulatory checklists. It’s time to lead with purpose using data and technology to drive real business value.

Contact us today to explore how we can support your compliance transformation.