Nasdaq Report Identifies Between $25 Billion and $50 Billion in Potential Efficiency Gains in Banks' Risk and Compliance Functions

Core Findings - The report highlights that targeted enhancements in banks' Risk and Compliance functions could generate efficiency gains of $25 billion to $50 billion without compromising effectiveness, potentially unlocking up to $1 trillion in additional lending capacity [1][2] - Financial institutions face exponential growth in complexity due to technological evolution, real-time finance expectations, and data explosion, compounded by regulatory pressures to combat financial crime and cyber-attacks [2] - The report emphasizes the need for a systems-based approach leveraging modern technology to manage complexity, foster resilience, and drive growth while reducing internal complicatedness [2][4] Complexity and Complicatedness - External complexity in the global financial system has increased 2x-3x over the past decade, driven by factors such as increased regulations and interconnectedness [9] - Organizational complicatedness has grown 35-fold over the past half-century, far outpacing the 6-fold increase in external complexity [9] - The number of new regulations per year is now more than 6x what it was during the Global Financial Crisis [9] Efficiency and Transformation Opportunities - Bank executives see significant opportunities for efficiency gains, with potential annual savings of $25 billion to $50 billion in Risk & Compliance operating expenditures [9] - These savings could unlock up to $1 trillion in lending capacity, addressing the $80 trillion required for global economic transformation over the next few decades [9] - The financial system is now at a technological and cultural inflection point, with increased comfort in leveraging cloud-based solutions (93% in 2024 vs 11% in 2014) and growing confidence in AI adoption [9] Technology and Strategic Partnerships - Financial institutions are increasingly turning to strategic technology partners offering holistic, best-in-class solutions to address complexity, with only 22% of industry professionals preferring to build software solutions in-house [3][9] - A shift from people-based to people-led processes, supported by systems-based solutions, can unlock human capital for higher-value tasks like decision-making, risk management, and innovation [4] - The transformative potential of AI is expected to redefine the financial industry, with solutions addressing current complicatedness challenges serving as the foundation for future AI-enabled success [4] Industry Insights - Despite $800 billion in annual tech investments and a 30% decrease in U S bank branches, overall operating costs for banks have not meaningfully declined [9] - Banks have spent nearly $250 billion on regulatory fines, excluding costs related to financial crime and its broader impact on the financial system [9] - The report calls for a comprehensive recalibration of people, processes, and systems to achieve efficiency gains and improved performance outcomes [4]