Financial crime reporting obligation to be extended in the UK

The FCA has opened a consultation on extending the annual financial crime reporting obligation, which currently requires firms subject to the Money Laundering Regulations 2017 and, in some cases, with revenues above certain thresholds, to complete a financial crime return each year. The return aggregates information that assists the FCA in determining the money laundering risks businesses face and pose.

While the FCA's revised proposals continue to apply revenue thresholds to define the scope of the reporting obligations for some types of firms, the regulator has outlined plans to require more firms to provide financial crime information "irrespective of their total annual revenue". This includes all firms authorised under the Financial Services and Markets Act in the UK which are within the scope of the MLRs and either "hold client money or assets" or that carry on an activity that the FCA considers poses higher money laundering risk.

The FCA has published a list of the activities it believes pose higher money laundering risk. Examples include a range of investment firms and most payment institutions, though firms that solely provide account information services or payment initiation services under the payment services framework in the UK will be exempt from the reporting obligation. Cryptoasset exchange providers, electronic money institutions, multilateral trading facilities and organised trading facilities are among the other categories of firms that would be subject to the new reporting requirements set out by the regulator.

David Hamilton of Pinsent Masons, the law firm behind Out-Law, said: "The FCA sees the annual financial crime return as an important data source, strengthening its ability to monitor trends in financial crime, assess the risks that firms face and pose, and target its responses. The proposal to extend the reporting obligation was trailed last year in the FCA’s 2019/20 business plan, and was also referenced in the UK’s economic crime plan 2019-2022. It is also consistent with reforms introduced by the Fifth EU Money Laundering Directive, which extended the scope of the 'regulated sector' anti-money laundering AML regime to, among others, cryptocurrency exchanges and custodian wallet providers. The consultation therefore comes as no surprise, but it would have a significant impact on the businesses that would be within scope."

"In particular, relevant firms would need to have a more granular approach to data capture, ensuring they collate the information required to complete the form. This may require an overhaul of existing governance frameworks around internal reporting structures, generation and dissemination of financial crime data, and senior management oversight. Firms would also need to conduct gap analyses in their data collection systems and remediate any gaps well in advance of any reporting deadline," he said.

Hamilton said firms can expect the FCA to publish a policy statement in the first quarter of 2021 following the end of its consultation on 23 November. He said firms should take the opportunity to "engage with the consultation process and understand what the FCA will expect of them if, as seems inevitable, the financial crime reporting obligation is extended".