FCA Finalise Financial Crime Return (REP-CRIM)

22 November 2016

On 11th November the FCA finalised the new Financial Crime Return form and guidance (called the REP-CRIM return) following industry feedback received on its consultation paper circulated earlier in 2016. The FCA’s original proposal to require certain firms to submit financial crime returns was previously tucked away in the FCA’s Quarterly Consultation Paper (CP15/42) in December 2015. Whilst the proposal of the return appeared uneventful, the implications for firms following its introduction may be more significant.

What is the ‘financial crime return’?

The return requires firms to provide a range of aggregated information to the FCA on an annual basis, including details of:

  • The locations (by geographical area) of a firm’s customers.
  • The number of customers linked to those jurisdictions which the firm has assessed as ‘high risk’.
  • The number of customer relationships refused or exited for financial crime reasons.
  • The number of suspicious activity reports that a firm has filed, including numbers of submissions made internally, disclosed to the NCA, submitted as consent requests, and a breakdown of those submitted under the Terrorism Act.
  • The number of investigative court orders received and restraint orders being serviced/ in effect.
  • The number of relationships maintained which ‘introduce’ business to the firm.
  • The resources that a firm allocates to tackling financial crime.
  • Information related to sanctions, such as the use of automated systems, whether repeat screening is conducted, as well as the number of true sanctions matches.
  • The firm’s view of the top 3 most prevalent frauds (optional information for firms).
    Firms will be required to submit this information electronically through the FCA’s GABRIEL reporting system using a prescribed form.

The reporting obligations take effect from 31 December 2016 and firms will have a submission period of 60 business days from year end in which to submit this information (increased from 30 business days following responses to the FCA’s consultation paper). In addition, as firms have had a relatively short time period in which to put in place the necessary data collection systems, the FCA will allow firms to complete their first Financial Crime Return on a ‘best endeavours basis’.

Who will need to complete the return?

Firms subject to the Money Laundering Regulations (MLRs), including banks, building societies, designated investment firms, investment firms, mortgage lenders, electronic money institutions, full permission consumer credit firms, life insurers, retail investment intermediaries, and mortgage intermediaries will be required to complete the return. In addition a materiality threshold is applied for certain of these firms (retail investment intermediaries, mortgage intermediaries, investment firms, consumer credit firms and electronic money institutions), meaning that those with total revenues of less than £5m annually will be exempt from reporting. The threshold is calculated based on all regulated and unregulated income as at the last accounting reference date, whether or not it comes from business subject to the Money Laundering Regulations.

General insurance firms and credit unions are also not required to complete the return at present; although they are likely to fall within the scope at a later date.

What are the changes to the return following consultation?

The FCA’s final reporting rules have taken on board industry feedback with the following key changes made:

  • Including the option for group-based reporting, rather than on a single entity basis.
  • Clarifying that in relation to operating jurisdictions, firms need only report information on the jurisdictions in which the firm operates, or has assessed as ‘high risk’, within the last two years.
  • Clarifying that firms may apply their own definition of PEPs when reporting on PEP relationships.
  • Aligning the definition of ‘customer’ to match the definitions of ‘client’ and ‘customer’ in the FCA’s Handbook when reporting on these types of relationships.
  • Requesting details of the number of consent SARs submitted, rather than as a percentage of the total number of SARs.
  • Confirming that sanctions reporting is confined to customer screening information (rather than payment screening information).
  • Making optional the questions regarding the ‘top 3’ prevalent types of fraud firms have experienced.

What are the implications for firms?

There are likely to be some common challenges for firms in completing the detail of information required for the return, for example:

  • Country: Firms will need to ensure that they have a comprehensive country risk list in place with a clearly defined financial crime risk methodology that supports those jurisdictions designated as ‘high risk’. In addition, the firm will need to define how they are determining customer “location” and how they will obtain this information.
  • Customer: Clarity on PEP definition, including where the firm has ‘corporate PEPs’ will be key to ensuring that the firm submits accurate numbers in relation to high-risk relationships. Furthermore, the firm will need to ensure that it can clearly differentiate on what basis the relationship has been defined as ‘high-risk’ to allow for ease of reporting in each of the appropriate data fields (i.e. a PEP, non-EEA correspondent bank or ‘all other high-risk relationships’).
  • SARs: Due to the granularity of information required on SARs, firms will need to ensure that they can easily interrogate their records to identify SARs submitted under POCA or the Terrorism Act, as well as differentiate between those that were only reportable internally versus submission to the authorities.
  • Resource: Determining the proportion of an employee’s role dedicated to financial crime prevention (and fraud) may also prove challenging. For example, the firm may need to consider whether it should group staff together to provide approximate timings and think about how it can differentiate financial crime prevention activity from other activities. Defining and recording the approach used to justify the answer will be important.

What is evident is that the scope and detail of the information required should not be underestimated. Flagging any potential problems early will be of benefit, as it is unlikely that firms will readily hold all the information required to be able to complete the return ahead of submission. In addition, firms should be looking to rationalise and document their approach in defining answers to the return – especially in support of any future supervisory challenge.

How Bovill can help?

Whether your firm has already completed the work, is part way through or wondering how to get the process started, Bovill can help and we would be happy to:

  • Review and assure any work done or arrangements made to respond to the REP-CRIM
  • Provide guidance on whether your firm falls in scope of the reporting threshold and what data is needed to meet the reporting requirements
  • Provide hands on assistance to create the framework required to ensure accurate and efficient reporting for the current year and going forward
  • Sense check the data before submission to the FCA.

If you would like to discuss further, please do get in touch.

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