The Annual Financial Crime Report (“REP-CRIM “) provides the FCA with information on a range of indicators that reflect the potential money laundering risk of a firm. In 2018, the Financial Action Task Force (FATF), the international body that sets global standards on combating money laundering and terrorist financing, suggested the FCA consider extending the application of REP-CRIM to all firms it supervises which are subject to the Money Laundering Regulations (“MLRs”). That commitment was noted in the UK’s Economic Crime Plan 2019 to 2022 and is now being consulted on.
The current obligation to report REP-CRIM applies to banks, building societies and mortgage lenders, irrespective of revenue threshold and to intermediaries, e-money institutions and consumer credit firms where total revenue is £5 million or more. This means the FCA collects data from just over 10% of the firms it supervises.
The proposed extension
FCA is consulting to extend the scope of the annual financial crime reporting obligation to all FSMA authorised firms within the scope of the MLRs that hold client money or assets and to firms holding a broader range of permitted activities that includes “dealing in investment as agent”, “managing investments”, “managing an AIF”, “managing a UCITS” and “trustee and depositary activities”, irrespective of revenue size. FCA estimates that an additional 4,500 firms will need to report annually.
When will this start?
If implemented, the reporting requirement will apply from each firm’s next accounting reference date 12 months after any FCA rules are made. Consultation is open until 23 November 2020.
What information will be asked for?
The consultation does not indicate if the FCA is seeing money laundering amongst the firms it supervises. It suggests, however, the FCA has not been looking wide enough to be confident it can identify the firms of highest risk. So, if accepted, these proposals will likely require annual reporting of information including:
– Operating jurisdictions
– Number of Politically Exposed Persons
– Geographic distribution of customers
– Number of customers linked to high-risk jurisdictions
– Number of suspicious activity reports
– Number of introductory relationships
– Total FTE of UK staff with financial crime roles and the percentage of those dedicated to fraud responsibilities
– Use of automated screening systems
– Whether there is repeat customer sanctions screening
– The Firm’s view of the top 3 prevalent frauds.
The proposed changes indicate the FCA intends to identify and sharpen its focus on firms that present a higher risk of financial crime or which lack the types of controls and processes adopted by larger institutions. Firms may need to implement systems and controls improvements to meet regulatory expectations and collect the data. A good place to start would be to update the firm’s Financial Crime Risk Assessment and identify any gaps in controls or data needed to answer accurately and completely the questions in REP-CRIM.
For further information