Introducing REP-CRIM: The Annual Financial Crime Report

September 4, 2016

Although the FCA first consulted on the introduction of a new Financial Crime Report (“REP-CRIM”) back in December 2015, this additional burden on firms has, to date, received relatively little publicity. This is possibly due to it being was tucked away in a Quarterly Consultation which covered a number of non-related issues.

The new requirements were recently confirmed in an FCA Policy Statement (PS16/19), albeit with some amendments to the reporting deadline and proportionality exemptions. In this alert, we introduce the main features of REP-CRIM, and suggest some steps that firms can take now to ease the burden of reporting for the first time.

What is the purpose of REP-CRIM?

REP-CRIM should be viewed as an attempt by the FCA to identify broad financial crime trends and emerging issues, rather than to hold individual firms to account on their internal procedures and controls. As one would expect, the reduction of financial crime continues to be a very high priority for the FCA, one of the seven priority themes set out in their business plan for 2016/17.

The FCA plans to use the data collected from REP-CRIM to support its financial crime supervision strategy, replacing information hitherto gathered through ad hoc requests. It has declined to commit to publishing the aggregated 2016 data collected from firms, but has indicated that it will do so from 2017 onwards.

Who has to submit this return?

Apart from those able to avail themselves of the limited exemptions available on proportionality grounds, REP-CRIM will apply to all FCA-regulated firms who are also subject to the UK’s Money Laundering Regulations, 2007. In practice, nearly all buy-side and sell-side firms will have to complete the return.

What are the exemptions for proportionality?

The initial consultation proposed an exemption from REP-CRIM for intermediaries and consumer credit firms with a turnover of less than £5 million. The Policy Statement confirms this threshold, covering total revenue (i.e. turnover from both regulated and unregulated activities), and extends this to all investment firms (i.e. including investment managers). However, the exemption is not available to banks, mortgage lenders and insurance companies. The FCA has indicated that it will review the £5 million threshold every three years. Although set at a relatively low level, the exemption does at least provide relief to some firms, including those at or near the start-up stage.

When do the new rules come into force?

The new financial crime reporting regime applies from 31 December 2016, with the new section of the FCA Handbook, SUP 16.23, in force from that date.

When does the new report have to be submitted?

REP-CRIM has to be submitted on an annual basis, within 60 business days of the firm’s accounting reference date (note that this deadline has been extended from the originally proposed 30 days). Thus, for firms with a 31 December year end, the deadline to report will be 27 March 2017.

We anticipate that the new return will be added to your GABRIEL schedule well before that date but, as always, the onus is on the firm to check that their schedule is correct. The FCA will not accept the excuse that GABRIEL did not mention REP-CRIM!

What information will have to be reported?

SUP 16 Annex 42A will contain the format of the new REP-CRIM, with Guidance Notes also available in SUP 16 Annex 42B). These can be viewed through the FCA Handbook time-shift feature, or in PS16/19 itself. Broadly speaking, there are five main sections:

  1. Operating jurisdictions: where the firm operates, and which of these have been deemed “high risk” from a financial crime perspective.
  2. Customer information: in an investment management context, this denotes the funds and any segregated accounts managed by the firm (i.e. not investors in the fund). This requires the geographical location of customers, including any Politically Exposed Persons (“PEPs”) or others deemed “high risk”.
  3. Compliance information: the number of suspicious activity reports (“SARs”) made to the National Crime Agency (“NCA”) during the period and the number of staff with financial crime roles.
  4. Sanctions-specific information: the use of automated systems to screen customers against sanctions lists, and how many alerts were subsequently reported.
  5. Fraud: the firm’s view of the top three most prevalent frauds that the FCA should be aware of. Note that this question is not mandatory and may or may not be answered with types (from a pre-specified list) that impact the firm itself.

How should the firm prepare for REP-CRIM?

A good starting point would be a thorough review of the firm’s Financial Crime Risk Assessment to ensure that it is: a) up to date; and b) contains all the relevant information required by REP-CRIM such as location of customers.

It would also make sense to put together and present the Annual Money Laundering Reporting Officer’s Report to the governing body of the firm to coincide with the period end for the REP-CRIM return, since some of the same data will be covered such as any new accounts taken on and how many SARs were submitted during the relevant period.

Please note that your regular ACA consultants will be available to assist you in drafting REP-CRIM, and will be discussing this with you in the coming months. In the meantime, please contact Martin Lovick or Yasin Sridhar with any questions on this e-mail.